The short-run effect of unexpected disinflation is rising unemployment.

Question

Quizplus · Accepted Answer

Unanticipated disinflation involves a decrease in the general price level that was not expected by workers and firms. When suppliers reduce their selling prices, they typically cut back on their output, which results in a reduction in production and employment. As a result, there is a positive relationship between unanticipated deflation and unemployment.

The Short-Run Effect of Unexpected Disinflation Is Rising Unemployment