According to the modern expectational Phillips curve, unemployment will temporarily fall below the natural rate of unemployment when
A) any inflation is present.
B) inflation turns out to be lower than what people expected.
C) inflation turns out to be higher than what people expected.
D) inflation turns out to be equal to what people expected.

Question

Quizplus · Accepted Answer

According to the modern expectational Phillips curve, if inflation is higher than expected, firms and workers are caught off guard, leading to lower real wages and increased employment, temporarily reducing unemployment below the natural rate.

According to the Modern Expectational Phillips Curve, Unemployment Will Temporarily