A low rate of expected inflation tends to lead to a ________ rate of actual inflation,and a high rate of expected inflation tends to lead to a ________ rate of actual inflation.
A) high;high
B) high;low
C) zero;high
D) low;high
E) low;low

Question

Quizplus · Accepted Answer

The theory of the expectations-augmented Phillips curve suggests that there is a direct relationship between expected inflation and actual inflation. When individuals expect low inflation, they tend to demand lower wages and prices, which in turn leads to a lower rate of actual inflation. Conversely, when people expect high inflation, there tends to be an increase in wages and prices, leading to a higher rate of actual inflation. Therefore, a low rate of expected inflation tends to lead to a low rate of actual inflation, and a high rate of expected inflation tends to lead to a high rate of actual inflation.

A Low Rate of Expected Inflation Tends to Lead to a ________