Assume That Expected Inflation Is Based on U E =

Multiple Choice

Assume that expected inflation is based on u e = 8nt- 1. If 8 = 0, we know that:

A) low rates of unemployment will cause steadily increasing rates of inflation.
B) high rates of unemployment will cause steadily decreasing rates of inflation.
C) the Phillips curve illustrates the relationship between the level of the inflation rate and the level of the unemployment rate.
D) a decrease in the unemployment rate will have no effect on inflation.
E) an increase in the unemployment rate will have no effect on inflation.