If people expect economic fluctuations to be permanent and caused primarily by supply-side shifts, then the result is likely to be a positive relationship between the inflation rate and the unemployment rate.

Question

Quizplus · Accepted Answer

If people expect economic fluctuations to be permanent and caused primarily by supply-side shifts, then they will likely adjust their expectations of future inflation and unemployment accordingly. This can lead to a positive relationship between the inflation rate and the unemployment rate, as higher inflation expectations can lead to higher wage demands and reduced investment, both of which can contribute to higher unemployment.

If People Expect Economic Fluctuations to Be Permanent and Caused