If an increase in inflation is expected, which of the following events is the least likely to occur?
A) There will be an upward movement along the long-run Phillips curve.
B) Nominal GDP will increase.
C) Nominal wage rates will increase at the same rate as expected inflation.
D) A worker's reservation wage will rise at the same rate as expected inflation.
E) Unemployment rate will increase.

Question

Quizplus · Accepted Answer

An increase in inflation typically leads to a decrease in real wages, which can lead to higher unemployment rates. Therefore, it is least likely that unemployment rates will increase in response to expected inflation. Choices A, B, C, and D are all plausible outcomes in response to expected inflation.

If an Increase in Inflation Is Expected, Which of the Following