Along the short- run Phillips curve, if the actual unemployment rate falls below the natural unemployment rate, the
A)expected inflation rate will fall to zero.
B)actual inflation rate may be greater than, equal to, or less than the expected inflation rate
C)actual inflation rate will be greater than the expected inflation rate.
D)actual inflation rate will be less than the expected inflation rate.
E)actual inflation rate will be equal to the expected inflation rate.

Question

Quizplus · Accepted Answer

The short-run Phillips curve illustrates an inverse relationship between unemployment and inflation. When the actual unemployment rate falls below the natural rate, it indicates an overheating economy, leading to higher demand for goods and services. This increased demand often results in higher prices, causing the actual inflation rate to exceed the expected inflation rate as firms and workers adjust their expectations.

Along the Short- Run Phillips Curve, If the Actual Unemployment