If the unemployment rate is below the natural rate, then
A)inflation is less than expected.As inflation expectations are revised the short-run Phillips curve will shift right.
B)inflation is less than expected.As inflation expectations are revised the short-run Phillips curve will shift left.
C)inflation is greater than expected.As inflation expectations are revised the short-run Phillips curve will shift left.
D)inflation is greater than expected.As inflation expectations are revised the short-run Phillips curve will shift right.

Question

Quizplus · Accepted Answer

When the unemployment rate is below the natural rate, it indicates an overheated economy, leading to higher than expected inflation. As people adjust their expectations for inflation upwards, the short-run Phillips curve shifts to the right, reflecting the new expectations.

If the Unemployment Rate Is Below the Natural Rate, Then