The figure given below represents the new classical long run and short run Phillips curve measuring inflation rate on vertical axis and unemployment rate on horizontal axis.
Figure 15.2

-Refer to the Figure 15.2. If the actual inflation rate is 15 percent and the expected inflation rate was 10 percent, the economy must currently be at:
A) point A.
B) point B.
C) point C.
D) point D.
E) point E.

Question

The figure given below represents the new classical long run and short run Phillips curve measuring inflation rate on vertical axis and unemployment rate on horizontal axis.
Figure 15.2
 
-Refer to the Figure 15.2. If the actual inflation rate is 15 percent and the expected inflation rate was 10 percent, the economy must currently be at:
A) point A. 
B) point B. 
C) point C. 
D) point D. 
E) point E.

Quizplus · Accepted Answer

If the actual inflation rate is higher than the expected inflation rate, the economy is likely experiencing an unexpected inflationary shock, which would place it at a point where inflation is higher than expected, such as point C.

The Figure Given Below Represents the New Classical Long Run