The rate of inflation tends to remain constant when
A)the unemployment rate is above the NAIRU.
B)the unemployment rate equals the NAIRU.
C)the unemployment rate is below the NAIRU.
D)the unemployment rate increases faster than the NAIRU increases.

Question

Quizplus · Accepted Answer

According to the Phillips curve, there is an inverse relationship between unemployment and inflation. When the unemployment rate equals the non-accelerating inflation rate of unemployment (NAIRU), inflation is expected to remain constant. This is because at the NAIRU, there is neither upward nor downward pressure on wages and prices, and the economy is said to be in long-run equilibrium. Any deviation from this level of unemployment can result in an increase or decrease in inflation rate.

The Rate of Inflation Tends to Remain Constant When