All of the following tend to occur when unemployment is above the natural rate EXCEPT
A) wage increases will be limited.
B) inflation will rise.
C) increases in the cost of production will be limited.
D) there is slack in the labor market.

Question

Quizplus · Accepted Answer

When unemployment is above the natural rate, it indicates a surplus of labor in the market, which puts downward pressure on wages and production costs. This tends to limit wage increases and increases in the cost of production. However, inflation is not expected to rise under such circumstances since there is limited demand for goods and services due to the weak labor market. Therefore, option B is the correct answer as it is contrary to economic theory.

All of the Following Tend to Occur When Unemployment Is