Disinﬂation can be explained by the Phillips Curve analysis as resulting from a situation where the actual rate of inﬂation is initially less than the expected rate, causing the unemployment rate to
A) rise temporarily. However, consequent decreases in nominal wages will eventually bring the actual and expected rates of inﬂation into balance.
B) rise temporarily. However, consequent increases in nominal wages will eventually bring the actual and expected rates of inﬂation into balance.
C) fall temporarily. However, consequent increases in nominal wages will eventually bring the actual and expected rates of inﬂation into balance.
D) fall temporarily. However, consequent decreases in nominal wages will eventually bring the actual and expected rates of inﬂation into balance.

Question

Quizplus · Accepted Answer

Disinflation, according to the Phillips Curve, leads to a temporary rise in unemployment as the actual inflation rate is lower than expected. Over time, nominal wages decrease to adjust to this lower inflation rate, aligning actual and expected inflation rates and stabilizing the economy.

Disinﬂation Can Be Explained by the Phillips Curve Analysis as Resulting