Based on the Phillips Curve, when the actual rate of inﬂation is greater than the expected rate, the unemployment rate will
A) rise temporarily, but decreases in nominal wages will bring the expected and actual rates of inﬂation into balance.
B) rise temporarily, but increases in nominal wages will bring the expected and actual rates of inﬂation into balance.
C) fall temporarily, but increases in nominal wages will bring the expected and actual rates of inﬂation into balance.
D) fall temporarily, but decreases in nominal wages will bring the actual and expected rates of inﬂation into balance.

Question

Quizplus · Accepted Answer

The Phillips Curve suggests that when actual inflation is higher than expected, employers can hire more workers at what seems to be the same real wage, due to the lag in wage adjustments to inflation. This increases employment and decreases unemployment temporarily, until nominal wages increase to match the new level of inflation, restoring the balance between expected and actual inflation rates.

Based on the Phillips Curve, When the Actual Rate of Inﬂation