According to the Phillips curve model, when expectations of inflation increase, the same level of unemployment will be associated with a higher rate of inflation.

Question

Quizplus · Accepted Answer

The Phillips curve model suggests that there is an inverse relationship between unemployment and inflation. When expectations of inflation increase, workers demand higher wages to compensate for expected increases in the price level, and firms pass these higher costs on to consumers in the form of higher prices, leading to a higher rate of inflation at the same level of unemployment.

According to the Phillips Curve Model, When Expectations of Inflation