According to Friedman and Phelps,if actual inflation is greater than expected inflation
A) the actual real wage is greater than the expected real wage.
B) the unemployment rate falls.
C) the actual real wage equals the expected real wage.
D) firms will hire fewer workers than they planned.

Question

Quizplus · Accepted Answer

According to the Phillips curve, there is an inverse relationship between inflation and unemployment. If actual inflation is greater than expected, it suggests that the economy is overheating and demand is exceeding supply, leading to a rise in prices. Firms will need to increase production to meet the demand, resulting in a decrease in unemployment. Therefore, the correct answer is B. The other options are incorrect because actual real wages will be lower than expected if inflation is higher than expected, and firms will hire more workers than planned to meet the demand.

According to Friedman and Phelps,if Actual Inflation Is Greater Than