Monetary Policy in Southland
In Southland the Department of Finance is responsible for monetary policy. Southland has had an inflation rate of 25% for many years.
-Refer to Monetary Policy in Southland. Suppose that the Southland Department of Finance undertakes a public relations campaign to convince people that it will soon change monetary policy to reduce inflation to 12.5%. If Southlanders believe their government then which, if any, curve(s) shift left?

Question

Quizplus · Accepted Answer

If Southlanders believe the government's commitment to reducing inflation, the short-run Phillips curve will shift left as expectations of lower inflation adjust. The long-run Phillips curve remains unchanged as it is vertical and represents the natural rate of unemployment.