If expectations of the inflation rate exceed the actual inflation rate, then:
A)the actual real wage is greater than the expected real wage.
B)the unemployment rate will fall.
C)the actual real wage will equal the expected real wage.
D)firms will hire more workers than they had planned.

Question

Quizplus · Accepted Answer

If expectations of the inflation rate exceed the actual inflation rate, this means that workers expected prices to rise more than they actually did. As a result, their real wage (their nominal wage adjusted for inflation) is higher than they expected it to be. This will lead to greater purchasing power and a higher standard of living.

If Expectations of the Inflation Rate Exceed the Actual Inflation