The unemployment rate-holding all else constant

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Reference no: EM13695076

In 2014, a firm and its workers negotiate and agree upon a nominal hourly wage of $30.52 for 2015. The price level in 2014 is 100 and they expect the inflation rate to be 8% in 2015. However, the actual inflation rate in 2015 ends up being 9%. Use this information to answer the following questions:

1. What is the expected price level in 2015?

2. What is the actual price level in 2015?

3. What is the real wage that the firm expects to pay and the employees expect to receive in 2015?

4. Assuming that the firm and workers do not adjust their agreed upon wage, what is the actual real wage workers earn in 2015?

5. The unemployment rate, holding all else constant,

a. falls because the actual inflation rate if greater than the expected inflation rate.

b. rises because the actual inflation rate is less than the expected inflation rate.

c. does not change since unemployment is not affected by inflation

Reference no: EM13695076

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