If unemployment is below the NAIRU, inflation generally:
A) accelerates.
B) decelerates.
C) becomes negative.
D) gets caught in a downward spiral.

Question

Quizplus · Accepted Answer

When unemployment is below the NAIRU (non-accelerating inflation rate of unemployment), it means the economy is producing at its maximum capacity and there is a shortage of labor, which can drive up wages and the cost of goods and services. This increased demand and reduced supply can lead to inflation accelerating, as prices rise due to the scarcity of goods and services.

If Unemployment Is Below the NAIRU, Inflation Generally