In the short run, an unanticipated increase in the inflation rate would
A) increase the unemployment rate.
B) decrease the unemployment rate.
C) unambiguously improve the misery index.
D) lower the natural rate of unemployment.

Question

Quizplus · Accepted Answer

An unanticipated increase in the inflation rate would likely decrease the unemployment rate in the short run due to the short-term inverse relationship between inflation and unemployment described by the Phillips Curve. Employers may increase hiring as they see nominal profits rise, not immediately realizing that these profits are being eroded by inflation, thus temporarily reducing unemployment.

In the Short Run, an Unanticipated Increase in the Inflation