An unanticipated reduction in the level of prices in the goods and services market, which results in a temporary increase in real wage rates, will
A) increase the natural rate of unemployment.
B) reduce the natural rate of unemployment.
C) result in an actual rate of unemployment that is less than the natural rate of unemployment.
D) result in an actual rate of unemployment that is greater than the natural rate of unemployment.

Question

Quizplus · Accepted Answer

A reduction in price levels increases real wages, leading to higher unemployment as firms reduce hiring due to increased labor costs, resulting in unemployment above the natural rate.

An Unanticipated Reduction in the Level of Prices in the Goods