$$\begin{array} { c c }
\begin{array} { c }
\text { Price level } \
( 2005 = 100 )
\end{array} & \begin{array} { c }
\text { Unemployment rate } \
\text { (percentage) }
\end{array} \
\hline 102 & 7 \
103 & 6 \
105 & 5 \
108 & 4 \
112 & 3 \
\hline
\end{array}$$
-Based on the above table, if the current price level is 100 and the natural unemployment rate is 5 percent, what is the expected inflation rate?
A) 2 percent
B) 3 percent
C) 5 percent
D) 8 percent
E) 12 percent

Question

$$\begin{array} { c c } 
\begin{array} { c } 
\text { Price level } \
( 2005 = 100 )
\end{array} & \begin{array} { c } 
\text { Unemployment rate } \
\text { (percentage) }
\end{array} \
\hline 102 & 7 \
103 & 6 \
105 & 5 \
108 & 4 \
112 & 3 \
\hline
\end{array}$$
-Based on the above table, if the current price level is 100 and the natural unemployment rate is 5 percent, what is the expected inflation rate?
A) 2 percent
B) 3 percent
C) 5 percent
D) 8 percent
E) 12 percent

Quizplus · Accepted Answer

The natural unemployment rate refers to the rate of unemployment that exists when there is no cyclical unemployment. Therefore, it represents the economy's long-run equilibrium unemployment rate.
According to the table, when the price level is 105 (which is a 5% increase from 100), the unemployment rate is 5%. This means that the economy is operating at its natural unemployment rate at a price level of 105. Therefore, we can assume that a price level of 100 is also consistent with the natural unemployment rate of 5%.
If the price level increases from 100 to 105, we can see from the table that the unemployment rate remains constant at 5%. Therefore, the expected inflation rate would be 5%.

-Based on the Above Table, If the Current Price Level