Full employment
NAIRU

Second, examine the other main case. Again start with the unemployment rate equal to the NAIRU. Then, either shrinking government budget deficits (or rising government surpluses) or rising real interest rates encourage higher unemployment. In this situation, the NAIRU theory says that inflation will get better (decelerate) if unemployment rates exceed the NAIRU for a long time. High unemployment leads to lower inflation, which in turn causes lower inflationary expectations and a further round of lower inflation. High unemployment causes the short-run inflation/unemployment trade-off to improve. This story fits the experience of the United States during the early 1980s (Paul Volcker 's war against inflation), during which unemployment rates stayed high (at about 10% of the civilian labor force) and inflation rates fell significantly.
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