The expectations Phillips curve shows the inverse relationship between inflation and unemployment when:
A) the unemployment rate is above the natural rate.
B) the economy experiences no inflation.
C) we take into account expectations of inflation.
D) the economy experiences high inflation.

Question

Quizplus · Accepted Answer

The expectations Phillips curve takes into account expectations of inflation, meaning that individuals' expectations of future inflation can influence their behavior and therefore impact the actual level of inflation and the unemployment rate. Therefore, the inverse relationship between inflation and unemployment is most accurate when expectations of inflation are taken into account.

The Expectations Phillips Curve Shows the Inverse Relationship Between Inflation