The inflation rate has been 3 percent per year for several years,and the unemployment rate has been stable at 5 percent.Unanticipated changes in government policy cause the inflation rate to increase to 6 percent.In the short run,we would expect the unemployment rate to
A)remain constant.
B)increase to 10 percent.
C)increase,but the exact amount cannot be known for sure.
D)decrease.

Question

Quizplus · Accepted Answer

In the short run, an increase in the inflation rate, especially if unanticipated, can lead to lower unemployment due to the short-term stimulative effect on the economy. This is partially explained by the Phillips Curve, which suggests an inverse relationship between inflation and unemployment in the short term.

The Inflation Rate Has Been 3 Percent Per Year for Several