Question

1) Suppose the economy is producing at the natural rate of output. Assuming a fixed natural rate of output and everything else held constant, the development of a new, more productive technology will cause ________ in the unemployment rate in the short run and ________ in inflation in the short run. A) a decrease; an increase B) an increase; an increase C) no change; no change D) a decrease; a decrease

Answer 1

Answer:

Decrease, decrease

Explanation:

In this question, we are asked to state what will happen to unemployment rate and inflation in the short run in the event that a more productive technology is discovered.

Firstly, we must understand that producing a more productive technology will definitely cause an increase in the amount of needed labor. This automatically means there would be an decrease in unemployment rate as more people will be absolved into the labor force as a result of increase production level.

Now, a decrease in the unemployment rate is a positive indicator for the economy. The economy is expected to make gains and this will surely cause a decrease in the percentage of inflation in the short run