If the unemployment rate initially equals its natural rate, then if the inflation rate rises above its expected rate, the unemployment rate _ .
A) rises above its natural rate
B) equals the natural rate
C) remains constant
D) falls below its natural rate

Question

Quizplus · Accepted Answer

When the inflation rate rises above its expected rate, it typically leads to a temporary decrease in unemployment below its natural rate due to the short-run trade-off between inflation and unemployment, as described by the Phillips curve.

If the Unemployment Rate Initially Equals Its Natural Rate, Then