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Effect of Inflation on the Short-Run Phillips Curve

Inflation rate (percent per year)	Unemployment rate (percent)
12​	5​
3​	7​

Refer to the data in the table for the short-run Phillips curve. The short-run and long-run Phillips curves intersect at an inflation rate of 12 percent per year and an unemployment rate of 5 percent. The Fed announces its intention to decrease inflation from 12 percent to 3 percent per year, and it succeeds. If the assumptions of the rational expectations school hold true and if the Fed's announcement is credible, then the rate of unemployment will be ________ percent in the short run.

▸ less than 5

▸ 5

▸ between 5 and 7

▸ 7

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