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

Question

Quizplus · Accepted Answer

When inflation is correctly anticipated, workers and employers adjust their expectations and contracts accordingly, keeping unemployment at the natural rate.

When Workers and Employers Correctly Anticipate an Increase in Inflation