When the actual inflation rate exceeds the expected inflation rate due to changes in aggregate demand:
A)Unemployment is below the natural rate of unemployment.
B)Unemployment is above the natural rate of unemployment.
C)Unemployment equals the natural rate of unemployment.
D)Unemployment could be above, equal to, or below the natural rate of unemployment.

Question

When the actual inflation rate exceeds the expected inflation rate due to changes in aggregate demand:
A)​Unemployment is below the natural rate of unemployment.
B)​Unemployment is above the natural rate of unemployment.
C)​Unemployment equals the natural rate of unemployment.
D)​Unemployment could be above, equal to, or below the natural rate of unemployment.

Quizplus · Accepted Answer

When the actual inflation rate exceeds the expected inflation rate due to changes in aggregate demand, it typically means the economy is overheating, which often results in unemployment being below the natural rate of unemployment. This is because higher demand for goods and services can lead to increased hiring to meet that demand.

When the Actual Inflation Rate Exceeds the Expected Inflation Rate