Suppose that the inflation rate has been 2 percent per year for several years, and the unemployment rate has been stable at 5 percent. Unanticipated changes in government policy cause the inflation rate to increase to 5 percent. In the short run, we would expect the unemployment rate to

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Quizplus · Accepted Answer

In the short run, an increase in the inflation rate, especially if unanticipated, can lead to lower unemployment due to the short-term stimulative effects on the economy. This is partially explained by the Phillips Curve, which suggests an inverse relationship between inflation and unemployment in the short term.

Suppose That the Inflation Rate Has Been 2 Percent Per