Question 5

Which of the following is most likely to cause an increase in the inflation rate?

a reduction in the percentage of workers who are in labor unions

an increase in the non-labor costs of production

an increase in competition between firms

(HINT: More competition between firms would incentivize them to lower their prices and markups, which would push down the inflation rate.

an increase in the unemployment rate)

Question 6

In the figure below, when employment is at the level at point C, the wage-setting curve lies below the price- setting curve. Assume inflation is zero at point A. In a competitive system, firms will begin to _____________ prices and this will start a process of _____________.

In the figure below, when employment is at the level at point C, the wage-setting curve lies below the price- setting curve. Assume inflation is zero at point A. In a competitive system, firms will begin to prices and this will start a process of Wage-setting curve Labour productivity Real profit per worker C B Real wage (High unemployment) Price-setting curve (Low unemployment) Real wage per worker Employment, N Employment at labour market equilibrium