The rate of inflation increases when
A)the unemployment rate equals the NAIRU.
B)the unemployment rate exceeds the NAIRU.
C)the unemployment rate is less than the NAIRU.
D)the unemployment rate increases faster than the NAIRU increases.

Question

Quizplus · Accepted Answer

The rate of inflation tends to increase when the unemployment rate is less than the Non-Accelerating Inflation Rate of Unemployment (NAIRU), as this situation typically indicates that the economy is overheating, leading to upward pressure on wages and prices.

The Rate of Inflation Increases When