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The government designates the end of the pandemic period as Year 0. In this year, the inflation rate is 3% and the unemployment rate is
The government designates the end of the pandemic period as Year 0. In this year, the inflation rate is 3% and the unemployment rate is 6%. In each of Years 1, 2, and 3, the rate of inflation is observed to be 2%. Unemployment remains unchanged at 6% in all years.
You are informed that prior to the pandemic, the equilibrium (inflation-stabilizing) rate of unemployment was 6%.
Provide an explanation for what is observed in the data.
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