In 2009, Simon Johnson, former chief economist
at the International Monetary Fund, believed that
Fed policies might lead to a sharp increase in
inflation.
He argued: The large increase in credit from the
Federal Reserve can potentially push
up prices, even though unemployment
remains relatively high. . . . If this seems
far-fetched, remember the importance of
self-fulfilling expectations as far as inflation
is concerned.
Use the equation for the Phillips curve to explain
how it is possible to have a high inflation rate
even if the unemployment rate is high.