Question

8. Policy makers may become concerned if the unemployment rate is too low because:

	a.	output growth rate may decrease.
	b.	stock prices may fall.
	c.	an exchange rate crisis might occur
	d.	inflation might increase.

Answer 1

Option D is the answer to this question.

Policymakers may become concerned if the unemployment rate is too low because inflation might increase.

Economists have found that when the unemployment rate falls below a certain level, called the natural rate, the inflation rate will continue to rise and continue to rise until the unemployment rate returns to its natural rate. Come on.

The natural rate of unemployment is the level of unemployment that resembles sustainable economic growth. The unemployment rate below the natural rate shows that the economy is growing faster than its maximum sustainable rate due to which wages and prices are generally the pressure is increasing leading to an increase in inflation.

Two other things of changes in the rate of inflation are inflation expectations and surprising changes in the supply and goods and services. Inflation expectations play an important role in the real level of inflation because peoples incorporate their inflation expectations When making price decisions or bargaining for earnings. Changes in the availability of goods and services used as inputs in the production process (eg. - oil ) affect the final price of goods and services in the economy and thus change in the rate of inflation.

For example, the natural rate of unemployment is affected
Changes in demographics, educational attainment, and labor force work experience;
Institutions (for example, apprenticeship programs) and public policies (eg, unemployment insurance);
Change in productivity growth; and
Contemporary and past levels of long-term unemployment.

Inflation has not given any sign of acceleration recently as the natural rate of unemployment has gone up significantly. Some economists have used this as evidence to explain the fluctuations in inflation, leaving the natural rate of unemployment in favor of other alternative indicators.