dece2011

I think AndrewP has got it correctly, except his last line.

"It is a matter of expectations versus actual. Their is an unexpected decrease in the money supply growth. The wages in the short run are fixed and based upon the expected inflation being higher than actual inflation due to the unexpected decrease in money supply growth. The workers benefit relative to the firm. Their real wages increase. Because real wages increase, supply (of labor) will decrease, increasing unemployment."

Last line should have been, "Because real wages increase, demand (of labor) will decrease, increasing unemployment."

dece2011

Thanks rus,

I have been a CFA tutor for three years now. I just wander around the forum to maintain my 'edge'.