-The figure above shows an economy's Phillips curves. Currently, the inflation rate is 6 percent a year. If inflation expectations remain unchanged, the current unemployment rate is
A) less than the natural rate.
B) greater than the natural rate.
C) equal to the natural rate.
D) 6 percent.

Question

-The figure above shows an economy's Phillips curves. Currently, the inflation rate is 6 percent a year. If inflation expectations remain unchanged, the current unemployment rate is
A) less than the natural rate. 
B) greater than the natural rate. 
C) equal to the natural rate. 
D) 6 percent.

Quizplus · Accepted Answer

When the inflation rate is above the expected rate, it indicates that the economy is overheating, and unemployment is typically below its natural rate. This is because higher inflation often results from stronger demand for goods and services, which leads employers to hire more workers, thus reducing unemployment below its natural level.

-The Figure Above Shows an Economy's Phillips Curves