For a number of years country A had inflation of 3 percent but for the last five years has had inflation of 6 percent. Country B had inflation of 4 percent for many years, but very recently inflation unexpectedly rose to 9 percent. Other things the same, in which of the countries would the higher inflation rate be more likely to reduce unemployment?

Question

Quizplus · Accepted Answer

The Phillips Curve suggests that lower unemployment can sometimes be associated with higher inflation, particularly if the inflation is unexpected. Country B's recent and unexpected rise to 9 percent inflation is more likely to temporarily reduce unemployment compared to Country A, where the inflation increase has been steady and less sudden, allowing for more anticipation and adjustment by the market.

For a Number of Years Country a Had Inflation of 3