According to the Phillips curve unemployment will return to the natural rate when ?
Correct answer: A. Nominal wages are equal to expected wages
- A. Nominal wages are equal to expected wages
- B. Real wages are back at equilibrium level
- C. Nominal wages are growing faster than inflation
- D. Inflation is higher than the growth of nominal wages
Explanation
In the expectations-augmented Phillips curve, unemployment returns to its natural rate when actual wage or price expectations are fulfilled, so there is no unexpected inflation. This is represented here by nominal wages matching expected wages.
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