Inflation accelerates or decelerates when the
A) NAIRU equals the natural rate of unemployment.
B) actual rate of unemployment remains below or above the NAIRU.
C) full-employment rate of unemployment remains above or below the natural rate of unemployment.
D) rate of change in productivity exceeds or falls short of the NAIRU.
E) unemployment rate exceeds or falls short of the rate of inflation.

Question

Quizplus · Accepted Answer

Inflation accelerates when the actual rate of unemployment remains below the NAIRU (non-accelerating inflation rate of unemployment) and decelerates when the actual rate of unemployment remains above the NAIRU. This is because when unemployment falls below the NAIRU, there is a shortage of labor which drives up wages and prices, leading to inflation. On the other hand, when unemployment remains above the NAIRU, there is a surplus of labor which puts downward pressure on wages and prices, leading to lower inflation or deflation.

Inflation Accelerates or Decelerates When the