Asked by Jocelyn Espericueta on Jun 28, 2024
Verified
If expected inflation rises but actual inflation remains the same, what happens to the unemployment rate? Defend your answer.
Expected Inflation
The rate at which the general level of prices for goods and services is anticipated to rise over a specified period.
Actual Inflation
The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling, as it is currently being measured or experienced in the economy.
Unemployment Rate
The ratio of individuals in the labor force who are without a job and are searching for employment.
- Detail the consequences of forecasted inflation as opposed to actual inflation on the rates of unemployment.
Verified Answer
DC
David ChiquinJun 30, 2024
Final Answer :
Unemployment rises. The increase in expected inflation shifts the short-run Phillips curve to the right. This means that any inflation rate, the unemployment rate is higher.
Learning Objectives
- Detail the consequences of forecasted inflation as opposed to actual inflation on the rates of unemployment.