Question

For this question, assume that the expected rate of inflation is a function of past year's inflation. Also assume that the unemployment rate has been less than the natural rate of unemployment for a number of years. Given this information, we know that

a. The rate of inflation will approximately be equal to zero
b. The rate of inflation should neither increase nor decrease
c. The rate of inflation should steadily increase
d. The inflation rate will be approximately equal to the natural rate of unemployment
e. The rate of inflation should steadily decrease over time

Answer 1

The answer is: C) The rate of inflation should steadily increase

Step-by-step explanation:

The Phillips curve refers to an economic concept that claims that inflation rate and unemployment rate have an inverse relationship. In other words, when inflation is high, unemployment should be low.

In this question, unemployment rate has been steadily low for a number of years, so that means that inflation should steadily increase also.