Assume the natural rate of unemployment is 6%. Draw the short-run and long-run Phillips curves and show the position of the economy if expected inflation is 3% and the actual inflation rate is 4%.

Natural Rate

The natural rate often refers to the natural rate of unemployment, which is the level of unemployment consistent with a stable inflation rate over time.

Phillips Curves

A graphical representation indicating the inverse relationship between the rate of unemployment and the rate of inflation in an economy.

Expected Inflation

The anticipated rate at which the general level of prices for goods and services will rise over a period.