Question

g The rate of inflation tends to remain constant when Question 2 options: A) the unemployment rate increases faster than the NAIRU increases. B) the unemployment rate equals the NAIRU. C) the unemployment rate is above the NAIRU. D) the unemployment rate is below the NAIRU.

Answer 1

The correct answer is letter "B": the unemployment rate equals the NAIRU.

Step-by-step explanation:

The Non-Accelerating Inflation Rate of Unemployment (NAIRU) is the level of unemployment in an economy that does not allow inflation to grow. The NAIRU is based on the principle that if unemployment raises over the years, inflation should decrease. This is because the economy would be performing poorly, thus, consumer demand would be decreasing which will decrease the possibility of inflation to rise.

So, if the unemployment rate equals NAIRU inflation is constant.