Economists postulate that there is a relationship between inflation and unemployment within societies. They state that when the real GDP of a country is high, actual unemployment rate falls below its natural level. What effect does this have on inflation?

Question

Quizplus · Accepted Answer

High real GDP leads to actual employment rates to fall and inflation to accelerate.
Key Takeaway: When the real GDP of a country is high (an indication of high economic activity), the actual unemployment rate falls below its natural level. This often leads to an acceleration of inflation due to a number of factors such as an artificial hike in wages.

Economists Postulate That There Is a Relationship Between Inflation and Unemployment