When workers and employers correctly anticipate the rate of inflation
A)there will be no unemployment.
B)there will be only involuntary unemployment.
C)unemployment will be at the natural rate.
D)workers will underestimate the real wage.

Question

Quizplus · Accepted Answer

When workers and employers correctly anticipate the rate of inflation, they will adjust the wage rate to match the anticipated inflation rate. This means that the real wage rate will remain constant, and employment will be at the natural rate. However, if workers underestimate the inflation rate, then they will demand a lower nominal wage rate, leading to higher unemployment. Therefore, C is the best choice as it accurately reflects the impact of correctly anticipating the rate of inflation.

When Workers and Employers Correctly Anticipate the Rate of Inflation