When there is an abrupt reduction in the rate of inflation,

Question

Quizplus · Accepted Answer

According to the Phillips Curve, there is an inverse relationship between inflation and unemployment, meaning that as inflation decreases, unemployment tends to increase. This implies that an abrupt reduction in inflation will tend to increase the actual rate of unemployment above the natural rate, resulting in a temporary tradeoff between inflation and unemployment. Therefore, the best choice is B.

When There Is an Abrupt Reduction in the Rate of Inflation