Q1: The Wage Phillips Curve (WPC) is the relationship between the unemployment rate (UR) and wage growth. Which statement below is a correct characterization?

a. The WPC exhibits a negative relationship between the UR and wage growth. In particular, when the UR is below the natural rate of unemployment (NRU), wages grow. Conversely, when it is above the NRU, wages fall.

b. The WPC exhibits a positive relationship between the UR and wage growth. In particular, when the UR is above the natural rate of unemployment (NRU), wages grow. Conversely, when it is below the NRU, wages fall.

c. The WPC exhibits a positive relationship between the UR and wage growth. In particular, when the UR is below the natural rate of unemployment (NRU), wages grow. Conversely, when it is above the NRU, wages fall.

d. The WPC exhibits a negative relationship between the UR and wage growth. In particular, when the UR is above the natural rate of unemployment (NRU), wages grow. Conversely, when it is below the NRU, wages fall.

Q2: In 2018 and 2019 the UR was mostly below 4%. However, price and wage inflation remained surprisingly low. Which statements below contribute to explain this puzzle? Pick all the correct statements.

a. In recent years, most job growth has occurred in low-wage services rather than manufacturing. So the worsening in the composition of employment has reduced aggregate wage growth.

b. Superstar firms are colluding to keep wage growth low in their industries.

c. There is an abundance of low-skill labor worldwide. International trade and globalization has kept wage growth low even in countries where that is not the case.

d. It is estimated that the NRU has been falling. So 4% unemployment rates may not be below the NRU anymore.