The expectations-augmented Phillips curve suggests a trade-off between unemployment and
A)unexpected inflation.
B)expected inflation.
C)either expected or unexpected inflation.
D)neither expected nor unexpected inflation.

Question

Quizplus · Accepted Answer

The expectations-augmented Phillips curve posits that inflation expectations play a role in determining actual inflation. Therefore, there is a trade-off between unemployment and unexpected inflation, as an increase in unemployment can lead to a decrease in inflation, while a decrease in unemployment can lead to an increase in inflation, if it is unexpected. However, there is no trade-off between unemployment and expected inflation, as expected inflation is already incorporated into wage and price decisions.

The Expectations-Augmented Phillips Curve Suggests a Trade-Off Between Unemployment and