If workers accurately predict the rate of inflation, is there a short-run trade-off between inflation and unemployment, as predicted by the Phillips curve? Why or why not?

What will be an ideal response?


If workers accurately predict the rate of inflation, then they will incorporate wage adjustments into their contracts that will take inflation into account. The result is no change in the real wage, and no change in the unemployment rate, indicating that there is no trade-off between inflation and unemployment. Instead, the Phillips curve would be vertical.

Economics

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Economics

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Economics