When workers and employers correctly anticipate an increase in inflation caused by an increase in aggregate demand,
A) there will be no unemployment.
B) workers will underestimate the real wage rate.
C) unemployment will be at the natural rate.
D) workers will overestimate the real wage rate.

Question

Quizplus · Accepted Answer

When workers and employers correctly anticipate inflation, they adjust their expectations and wage demands accordingly, leading to unemployment remaining at the natural rate.

When Workers and Employers Correctly Anticipate an Increase in Inflation