Along the short-run Phillips curve, if the actual unemployment rate falls below the natural unemployment rate, the
A)actual inflation rate will be equal to the expected inflation rate.
B)actual inflation rate will be greater than the expected inflation rate.
C)actual inflation rate will be less than the expected inflation rate.
D)actual inflation rate may be greater than, equal to, or less than the expected inflation rate
E)expected inflation rate will fall to zero.

Question

Quizplus · Accepted Answer

Along the short-run Phillips curve, if the actual unemployment rate falls below the natural unemployment rate, there will be excess demand in the economy, leading to increased inflationary pressures. This means that the actual inflation rate will be greater than the expected inflation rate, since people will adjust their expectations of future prices based on current inflation trends. Therefore, the best choice is B.

Along the Short-Run Phillips Curve, If the Actual Unemployment Rate