According to the modern expectational Phillips curve, unemployment will equal the natural rate of unemployment when
A) any inflation is present.
B) inflation turns out to be lower than what people expected.
C) inflation turns out to be higher than what people expected.
D) inflation turns out to be equal to what people expected.

Question

Quizplus · Accepted Answer

According to the modern expectational Phillips curve, unemployment will equal the natural rate of unemployment when inflation turns out to be equal to what people expected. This is because the natural rate of unemployment is the rate of unemployment that exists when there is no cyclical unemployment, and therefore there is no pressure on wages and prices to increase. If inflation turns out to be equal to what people expected, then there is no surprise inflation that would lead to an increase in wages and prices, and the economy would remain at the natural rate of unemployment.

According to the Modern Expectational Phillips Curve, Unemployment Will Equal