Question

"The fictional country of Yieng has had an influx of updated technology to its manufacturing plants and the medical field in the last three years. This has boosted the growth of the country’s productivity by 75%, but this year the pace has significantly dropped off. Wages were at first slow to respond to the growth, but now have reached new heights. Now that productivity growth has stopped increasing, what do you expect to happen to the natural unemployment rate for this stimed growth period?"

Answer 1

Answer:

In the previous years when the country's productivity was increasing t a 75% rate, the unemployment rate must have fallen a lot and the wages must have increased. Since productivity has stopped increasing, the unemployment rate will probably start to rise since their is gap between high labor supply (due to high wages) and a weakening labor demand.