Along a short-run Phillips curve when the inflation rate rises,
A) the real wage rate falls and more labor is hired.
B) the money wage rate falls because the labor market becomes less tight.
C) potential GDP decreases.
D) the expected inflation rate rises.
E) the expected inflation rate falls.

Question

Quizplus · Accepted Answer

In the short-run Phillips curve, an increase in the inflation rate typically leads to a decrease in the real wage rate, which can result in more labor being hired as firms take advantage of lower real labor costs.

Along a Short-Run Phillips Curve When the Inflation Rate Rises