Suppose an economy experiences a permanent increase in its natural unemployment rate.This change leads to

Question

Quizplus · Accepted Answer

A permanent increase in natural unemployment rate implies that there is a decrease in the potential level of output. This leads to a rightward shift of the short-run Phillips curve, indicating that the economy will experience higher inflation rates for any given unemployment rate. This shift occurs because the economy will now have to accept a higher level of inflation if it wants to achieve a lower level of unemployment. Therefore, the correct choice is (E) a rightward shift of the short-run Phillips curve.

Suppose an Economy Experiences a Permanent Increase in Its Natural