Suppose that last year the economy of Suffera was experiencing an expected inflation rate of 8 percent and unemployment rate of 12 percent. An unexpected increase in the inflation rate would
A) increase the unemployment rate.
B) increase the inflation rate and decrease the unemployment rate.
C) increase the inflation rate but have no effect on the unemployment rate.
D) None of the above answers is correct.

Question

Quizplus · Accepted Answer

An unexpected increase in the inflation rate typically leads to a decrease in the unemployment rate in the short term, according to the Phillips curve, which suggests an inverse relationship between inflation and unemployment. Employers may increase hiring due to the lower real wages, thus reducing unemployment.

Suppose That Last Year the Economy of Suffera Was Experiencing