Figure 4.16: The Path of Inflation Over Time with a Persistent Bargaining Gap

A country's government implements a series of fiscal policies that successfully maintain the national unemployment rate at 3% for several consecutive years. Economic analysis indicates that the rate of unemployment that keeps inflation constant is 5%. Given this sustained period of very low unemployment, what is the most likely long-term consequence for the economy?

Analyzing Sustained Economic Booms

Explaining Continuous Price Pressure in a Boom

Match each sustained economic condition with its most likely effect on the relationship between workers and firms, and the resulting pressure on prices.

The Wage-Price Spiral in a High-Employment Economy

When an economy's unemployment rate is sustained below the level that stabilizes inflation, the resulting persistent positive bargaining gap creates continuous upward pressure on ____.

An economy is in a sustained boom, with unemployment held below the rate that would keep inflation stable. This creates a persistent positive bargaining gap. Arrange the following events into the correct repeating sequence that describes the resulting upward pressure on prices.

For several consecutive years, a country's unemployment rate has been held at 2%, well below the 5% rate that is estimated to keep inflation stable. As a result, inflation has been rising year after year. Which statement best analyzes the core mechanism driving this continuous increase in inflation?

Evaluating a Policy Response to a Persistent Bargaining Gap