If the actual inflation rate exceeds the expected inflation rate,then:
A)the economy is operating along the long-run Phillips curve.
B)unemployment exceeds the natural rate.
C)maintaining the existing unemployment rate will require increasing inflation in the long run.
D)the actual rate will tend to fall toward the expected rate.
E)unemployment will tend to decrease in the long run.

Question

Quizplus · Accepted Answer

When the actual inflation rate exceeds the expected inflation rate, it typically means that the economy is overheating, with demand outpacing supply. This situation can temporarily lower unemployment as firms hire more workers to meet demand. However, to maintain this lower unemployment rate in the long run, inflation would need to keep increasing, as expectations adjust and workers demand higher wages to keep up with rising prices, leading to a wage-price spiral. This is consistent with the short-run Phillips curve concept, where there is a trade-off between inflation and unemployment.

If the Actual Inflation Rate Exceeds the Expected Inflation Rate,then