In 1964 and 1970, unemployment was about 5 percent. Inflation in 1964, however, was 2 percent, while in 1970 it was over 5 percent. What might explain this difference?

Question

Quizplus · Accepted Answer

An increase in expected inflation can lead to higher actual inflation as businesses and workers adjust their prices and wages in anticipation of higher costs, which could explain the rise in inflation from 1964 to 1970 despite similar unemployment rates.

In 1964 and 1970, Unemployment Was About 5 Percent