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(1) What is the effect of wage indexation on the relation between inflation and unemployment?

   

(a) As indexation increases, inflation becomes less sensitive to the difference between the unemployment rate and the natural rate.

 

   

(b) No effect

 

   

(c) As indexation increases, inflation becomes more sensitive to the difference between the unemployment rate and the natural rate.

 

   

(d) As indexation increases, inflation becomes less sensitive to the natural rate.

 

 

(2) When inflation has been persistent, as was the case in the United States during the 1970s, low unemployment rates will likely be associated with:

   

(a) low natural rates of unemployment.

   

(b) high but stable rates of inflation.

   

(c) high natural rates of unemployment.

   

(d) increases in the inflation rate.

(3) For this question, assume that the Phillips curve equation is represented by the following equation: 

 . A reduction in the unemployment rate will cause:

   

(a) a reduction in the markup over labor costs (i.e., a reduction in m).

   

(b) an increase in the markup over labor costs.

   

(c) an increase in the inflation rate over time.

   

(d) a decrease in the inflation rate over time.

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Sonal Bahl
Sonal BahlLv10
29 Sep 2019

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