If workers fail to believe that rising inflation will eventually result in comparable increases in wages, but firms do understand this, then there is a:
A)negative relationship between unemployment and inflation in the short run.
B)positive relationship between unemployment and inflation in the short run.
C)negative relationship between unemployment and inflation in the long run.
D)positive relationship between unemployment and inflation in the long run.

Question

Quizplus · Accepted Answer

In the short run, if workers do not expect wages to rise with inflation, firms can exploit this by paying lower real wages, leading to lower unemployment and higher inflation, creating a negative relationship.

If Workers Fail to Believe That Rising Inflation Will Eventually