In the short run, if the actual rate of inﬂation falls lower than the expected rate, then
A) proﬁts will temporarily fall and unemployment will temporarily rise.
B) proﬁts will temporarily rise and unemployment will temporarily fall.
C) nominal wages will rise, proﬁts will rise, and unemployment will fall.
D) nominal wages will fall, proﬁts will fall, and unemployment will rise.

Question

Quizplus · Accepted Answer

When actual inflation is lower than expected, real wages are higher than anticipated, leading to higher labor costs for firms. This results in lower profits and potentially higher unemployment as firms adjust to the unexpected cost increase.

In the Short Run, If the Actual Rate of Inﬂation