If the actual inflation rate exceeds the expected inflation rate,
A)the economy is on the long-run Phillips curve
B)unemployment exceeds the natural rate
C)maintaining the existing unemployment rate will require increasing inflation in the long run
D)the actual rate will tend to fall toward the expected rate
E)unemployment will tend to decrease in the long run

Question

Quizplus · Accepted Answer

When actual inflation exceeds expected inflation, it can temporarily reduce unemployment below the natural rate, but maintaining this lower unemployment in the long run would require continually increasing inflation, as per the expectations-augmented Phillips curve.

If the Actual Inflation Rate Exceeds the Expected Inflation Rate