Assume that the expected rate of inflation is a function of past inflation and that the unemployment rate has been equal to the natural rate of unemployment for some time. Given this information, we know that:

Question

Quizplus · Accepted Answer

If the expected rate of inflation is a function of past inflation and the unemployment rate has been stable at the natural rate, it implies that the economy is in a state of equilibrium. In such a scenario, there is no reason for the inflation rate to either increase or decrease significantly, as past inflation rates are being used as a basis for future expectations, and the economy is operating at its natural rate of unemployment.

Assume That the Expected Rate of Inflation Is a Function