Use the Information Below to Explain Adjustments That Move the Economy

question 137

Essay

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 = 4%.
The natural rate of unemployment = 6%.
Last year's inflation rate = 3%.
This year's inflation rate = 4%.

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Definitions:

Consumer Surplus

The incongruity between the maximum amount consumers are willing and able to pay for a good or service and the actual amount they end up paying.

Total Utility

The overall satisfaction or pleasure a consumer derives from consuming a certain amount or combination of goods and services.

Marginal Utility

The supplementary enjoyment or advantage gained by consuming one more unit of a good or service.

Consumer Surplus

The differentiation between the total investment consumers are willing and able to make in a product or service and the investment they end up making.