Despite the unemployment rate hovering around 9.8% in the United States for the past 18 months, the rate of inflation has increased. The main reason for this inflation increase is:
A)an expectation of higher inflation
B)an expectation of higher unemployment
C)an expectation of lower prices
D)an expectation of lower interest rates

Question

Quizplus · Accepted Answer

The main reason for this inflation increase is an expectation of higher inflation.
Key Takeaway: Despite an unemployment rate remaining constant, inflation rates increase due to an expectation of higher inflation in the future. Employers set a higher nominal wage in response to this expectation which, in turn, leads to an increase in price levels. This increase in price levels leads to a real increase in inflation rates.

Despite the Unemployment Rate Hovering Around 9