According to Friedman and Phelps, when is the unemployment rate above the natural rate?
A) when actual inflation is greater than expected inflation
B) when actual inflation is less than expected inflation
C) when actual inflation equals expected inflation
D) when actual inflation is high

Question

Quizplus · Accepted Answer

Friedman and Phelps argued that the unemployment rate is above the natural rate when actual inflation is less than expected inflation. This is because workers and employers make wage agreements based on expected inflation, and if actual inflation is lower, real wages are higher than anticipated, leading employers to hire less, thus increasing unemployment.

According to Friedman and Phelps, When Is the Unemployment Rate