Workers resist wage decreases more vigorously than they resist wage increases.This phenomenon makes the short-run Phillips curve nonlinear-steeper when inflation is positive than when inflation is negative.Given this nonlinearity,which of the following statements are true?
I.A positive inflation target (say 2%)leads to less unemployment than does an inflation target of zero.
II.The NAIRU (noninflationary rate of unemployment)is increased.
A) I is true; II is not.
B) II is true; I is not.
C) Both I and II are true.
D) Neither I nor II is true.

Question

Workers resist wage decreases more vigorously than they resist wage increases.This phenomenon makes the short-run Phillips curve nonlinear-steeper when inflation is positive than when inflation is negative.Given this nonlinearity,which of the following statements are true? 
I.A positive inflation target (say 2%)leads to less unemployment than does an inflation target of zero.
II.The NAIRU (noninflationary rate of unemployment)is increased.
A) I is true; II is not.
B) II is true; I is not.
C) Both I and II are true.
D) Neither I nor II is true.

Quizplus · Accepted Answer

A positive inflation target can reduce unemployment due to the nonlinearity of the Phillips curve, as it allows for real wage adjustments without nominal wage cuts, which workers resist. The NAIRU is not necessarily increased by a positive inflation target.

Workers Resist Wage Decreases More Vigorously Than They Resist Wage