Based on the expectations-augmented Phillips curve,if the natural rate of unemployment is 0.06,and if the actual inflation rate exceeds the expected inflation rate,then the unemployment rate is
A)less than 0.06.
B)0)06.
C)more than 0.06.
D)0)06 plus 0.5 times the difference between actual and expected inflation.

Question

Quizplus · Accepted Answer

The expectations-augmented Phillips curve suggests that if the actual inflation rate is higher than the expected inflation rate, firms and workers adjust their behavior based on the unexpected increase in inflation. This typically leads to lower unemployment in the short term as firms increase production and hiring, thus unemployment falls below the natural rate of unemployment (less than 0.06 in this case).

Based on the Expectations-Augmented Phillips Curve,if the Natural Rate of Unemployment