Based on the Phillips Curve, when the actual rate of inflation is greater than the expected rate, the unemployment rate will:
A) Rise temporarily, but decreases in nominal wages will bring the expected and actual rates of inflation into balance
B) Rise temporarily, but increases in nominal wages will bring the expected and actual rates of inflation into balance
C) Fall temporarily, but increases in nominal wages will bring the expected and actual rates of inflation into balance
D) Fall temporarily, but decreases in nominal wages will bring the actual and expected rates of inflation into balance

Question

Quizplus · Accepted Answer

When actual inflation exceeds expected inflation, unemployment temporarily falls as firms hire more due to higher-than-expected profits, leading to increased nominal wages until expectations adjust.

Based on the Phillips Curve, When the Actual Rate of Inflation