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Questions › DSE › DSE 2020 › Q6
4 marks, −1Macroeconomics › Inflation, unemployment and the Phillips curve › The natural rate of unemployment and NAIRUModerateabout 3 min

DSE 2020 Question 6: Inflation, unemployment and the Phillips curve

An economy produces its final commodity with labour only. The price-setting firm charges a 25%25\%25% mark-up over its per-unit nominal wage cost. Workers demand a real wage rate W/P=(1−u)W/P=(1-u)W/P=(1−u), where uuu is the unemployment rate. The natural rate of unemployment in this economy is

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An economy produces its final commodity with labour only. The price-setting firm charges a 25% mark-up over its per-unit nominal wage cost. Workers demand a real wage rate W/P=(1-u), where u is the unemployment rate. The natural rate of unemployment in this economy is (A) 20% (B) 17% (C) 13% (D) 10%

Inflation, unemployment and the Phillips curve has come up 106 times in 7 exams since 2006.

What this question tests

This question is on The natural rate of unemployment and NAIRU, part of Inflation, unemployment and the Phillips curve in Macroeconomics.

The unemployment rate consistent with stable inflation and what determines it.

TestStop has 19 past-paper questions on this subtopic.

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Question from the DSE 2020 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.