The inflation rate has been 3 percent per year for several years, and the unemployment rate has been stable at 5 percent. Unexpected changes in monetary policy cause the inflation rate to increase to 6 percent. In the short run, the unemployment rate will
A) increase to 8 percent.
B) decrease.
C) increase, but the exact amount cannot be known for sure.
D) remain constant.

Question

Quizplus · Accepted Answer

According to the Phillips curve, in the short run, there is an inverse relationship between inflation and unemployment. An unexpected increase in inflation typically leads to a decrease in unemployment.

The Inflation Rate Has Been 3 Percent Per Year for Several