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Question
Suppose demand conditions in industries X and Y are identical but that productivity increases by 5% in industry X and 2% in industry Y. If economy-wide productivity and the average wage each rise by 3%, we should expect that unit labor costs will:
a. increase by the same amount in both industries, in accord with the overall increase in the average wage
b. increase in both industries, but more in industry X than industry Y
c. increase in industry X and decrease in industry Y
d. decrease in industry X and increase in industry Y
Answer
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