Question

If the actual rate of inflation is only 3%, the unemployment rate will probably increase. The reason for this is that the prices of goods and services. relative to resource prices. In the short run, profit margins will ________ and firms will_____________ output, which will cause layoffs, and increase unemployment.

Answer 1

correct answer profit margins will decrease and firms will decrease output

Step-by-step explanation:

given data

actual rate of inflation = 3%

unemployment rate = increase

solution

we consider if expected inflation is here 10 % than we can say that

as we know when actual inflation is less than expected inflation

so prices is relatively lower than the cost of production.

and the firm profit margin will be decrease. this will lead to reduction in output and employment

so correct answer profit margins will decrease and firms will decrease output