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If Expected Inflation Rises but Actual Inflation Remains the Same

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Essay

If expected inflation rises but actual inflation remains the same, what happens to the unemployment rate? Defend your answer.


Definitions:

Disposable Income

Refers to the amount of money that households have available for spending and saving after income taxes have been accounted for.

APS (Average Propensity to Save)

The fraction of total income that is saved by the average household.

Disposable Income

The amount of money an individual or household has to spend or save after income taxes have been deducted.

Saving

The act of setting aside money for future use rather than spending it immediately.

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