If the level of unemployment is below the natural rate of unemployment, it would be expected that:
A)the short-run Phillips curve will shift leftward, as inflationary expectations adjust.
B)the inflation rate will increase.
C)the inflation rate will decrease.
D)the long-run Phillips curve will shift rightward, as inflationary expectations adjust.

Question

If the level of unemployment is below the natural rate of unemployment, it would be expected that:
A)​the short-run Phillips curve will shift leftward, as inflationary expectations adjust.
B)​the inflation rate will increase.
C)​the inflation rate will decrease.
D)​the long-run Phillips curve will shift rightward, as inflationary expectations adjust.

Quizplus · Accepted Answer

When unemployment is below the natural rate, it indicates that the economy is operating above its potential, leading to increased demand for goods and services. This heightened demand can cause prices to rise, leading to an increase in the inflation rate.

If the Level of Unemployment Is Below the Natural Rate