Economists postulate that there is a relationship between inflation and unemployment within societies. They state that when the real GDP of a country is high, actual unemployment rate falls below its natural level. What effect does this have on inflation?
A)it accelerates inflation
B)it decelerates inflation
C)it has an insignificant effect on inflation
D)it depends on the GDP

Question

Quizplus · Accepted Answer

High real GDP leads to actual employment rates to fall and inflation to accelerate.
Key Takeaway: When the real GDP of a country is high (an indication of high economic activity), the actual unemployment rate falls below its natural level. This often leads to an acceleration of inflation due to a number of factors such as an artificial hike in wages.

Economists Postulate That There Is a Relationship Between Inflation and Unemployment