A fully anticipated reduction in the rate of inflation is expected to:
A)reduce the unemployment rate in the short run,but not in the long run
B)reduce the unemployment rate in the both the short run and the long run
C)increase the unemployment rate in the short run,but not in the long run
D)have little impact on the unemployment rate in either the short run or the long run

Question

Quizplus · Accepted Answer

A fully anticipated reduction in the rate of inflation is generally expected to be incorporated into economic decisions and contracts (like wage negotiations), leading to minimal disruptions in the labor market. Therefore, it should have little impact on the unemployment rate in both the short run and the long run, as adjustments are made in anticipation of the change.

A Fully Anticipated Reduction in the Rate of Inflation Is