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Use the information below to explain adjustments that move the economy to a long-run equilibrium.Assume that firms and workers have adaptive expectations.
The current unemployment rate = 7%.
The natural rate of unemployment = 5.5%.
Last year's inflation rate = 5%.
This year's inflation rate = 4%.
Price of Capital
The cost associated with acquiring capital, including the interest or dividends paid to access funds or the rental rates paid for physical capital.
Marginal Resource Cost
Marginal resource cost refers to the additional cost incurred by employing one more unit of a resource, such as labor or capital, in production.
Marginal Revenue Product
The additional revenue generated from employing one more unit of a resource or factor of production.
Employment
The condition of having paid work; the extent to which available labor resources are being utilized in the economy.
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