An increase in the inflation rate increases employment only if the increase in inflation is unexpected.

Question

Quizplus · Accepted Answer

This is known as the "surprise inflation" effect, where an unexpected increase in inflation can lead to an increase in employment due to the fact that workers may not immediately demand higher wages, leading to lower unemployment in the short run. However, if inflation is expected, workers will demand higher wages and firms will reduce employment, leading to higher unemployment in the long run.

An Increase in the Inflation Rate Increases Employment Only If