Question

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

Answer 1

Answer:

The inflation rate should remain the same or around the same.

Explanation:

Since almost 50 years ago, there has been a very steady relationship between the inflation rate and the unemployment rate in the US. When the inflation rate is lowering, the unemployment rate tends to increase, and vice versa.

In this case the unemployment rate is stable and has been stable for a number of years, so the inflation rate should remain the same as last year's.