In which type of economy would you expect the standards of living to be high
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Answer:
Explanation:
if truly rate of actual unemployment is lower compared to the natural unemployment, it implies that the economy is making a greater effort for higher output level than its potential output.
Lower unemployment than natural rate of unemployment will reflect as lower availability of workers in the economy ,so unions and workers start demanding more wages ,which leads to increase in production cost of firms . Increase in production cost ,leads to decrease in firms supply and short run aggregate supply curve shifts lefttwards and SRAS keep shift to left till economy reach to full employment or potential GDP.As GDP Decreases no of workers Decreases and employment Decreases.
Conclusion: Short run aggregate supply Decreases and employment Decreases.
