In the short run,an unanticipated increase in the rate of inflation 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

In the short run, an unanticipated increase in the rate of inflation can decrease the unemployment rate due to the short-term positive relationship between inflation and employment, described by the Phillips curve. Employers may increase hiring as they see nominal profits rise, not immediately realizing that real purchasing power hasn't changed, while workers may accept lower real wages if they don't anticipate the inflation.

In the Short Run,an Unanticipated Increase in the Rate of Inflation