If the unemployment rate rises above the natural rate of unemployment in the short run, the inflation rate will rise.

Question

Quizplus · Accepted Answer

According to the Phillips curve, in the short run there may be a trade-off between unemployment and inflation, but in the long run, the economy will return to its natural rate of unemployment and any increase in the unemployment rate above the natural rate will not have a significant effect on the inflation rate. Therefore, if the unemployment rate rises above the natural rate in the short run, there will not necessarily be a corresponding increase in the inflation rate.

If the Unemployment Rate Rises Above the Natural Rate of Unemployment