In the short run, an unexpected increase in the inflation rate leads to
A) a higher unemployment rate.
B) a decrease in aggregate demand.
C) a lower unemployment rate.
D) workers thinking the money wage rate has fallen.

Question

Quizplus · Accepted Answer

DIn the short run, an unexpected increase in the inflation rate can lead to a lower unemployment rate because workers may perceive their real wages as being higher than they actually are, leading to increased labor supply and potentially more hiring by employers. Additionally, workers might think the money wage rate has fallen in real terms, but this misperception can temporarily boost employment until expectations adjust.

In the Short Run, an Unexpected Increase in the Inflation