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If the actual unemployment rate is below the natural rate of unemployment, it would be expected...

If the actual unemployment rate is below the natural rate of unemployment, it would be expected that:

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the natural rate of unemployment would fall

the Phillips curve would shift to the left

the rate of inflation would increase

wages would fall

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Answer #1

When actual GDP is equal to potential GDP the actual unemployment will be equal to natural rate. A decrease in unemployment rate below natural rate means that the real GDP increase beyond potential due to higher demand and which results in higher price or inflation. In short when actual unemployment is below the natural rate the rate of inflation will increase.

C. the rate of inflation would increase.

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