Question

According to the expectations Phillips curve, what happens to the unemployment rate if the inflation rate decreases when the inflation rate is the same as the expectation for the next year?

Answer 1

According to the expectations Phillips curve, if the inflation rate decreases when it is the same as the expectation for the next year, the unemployment rate will increase.

Step-by-step explanation:

The Phillips curve shows the tradeoff between unemployment and inflation in an economy. According to the expectations Phillips curve, if the inflation rate decreases when it is the same as the expectation for the next year, the unemployment rate will increase. This is because a decrease in inflation indicates a decrease in economic activity, which can lead to companies reducing their workforce and laying off workers, resulting in higher unemployment.