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If a central banker observes an accelerating rate of inflation in the economy, she would conclude...

If a central banker observes an accelerating rate of inflation in the economy, she would conclude that the current level of unemployment in the economy is likely (less than, greater than, or equal to) the nonaccelerating inflation rate of unemployment.

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Answer #1

According to the NAIRU theory, inflation is not changing when unemployment in the current status is equal to its natural rate. If unemployment rate is below the natural rate or NAIRU then inflation is accelerating. Similarly when Unemployment rate exceeds the NAIRU, then inflation is decelerating.

If there is an accelerating rate of inflation in the economy, it implies that the current level of unemployment in the economy is likely less than the nonaccelerating inflation rate of unemployment.

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