Question

Critical analysis Q8 Complete the following statement. An unexpected increase in the price level will temporarily output and employment, whereas an unexpected decrease in the price level will output and employment.

Answer 1

Answer: INCREASE; DECREASE

Explanation:An unexpected increase in the price of goods and services will cause a temporary output and employment,this is so because producers will respond to the rise in price by increasing the amount of goods and services supplied to the market,this will lead to a rise in employment.

An unexpected decrease in price level will lead to a decrease in the output by producers and employment will drop accordingly. This tries to show how price determines change in supply and employment.