An increase in the expected inflation rate shifts the
A) short- run Phillips curve upward.
B) short- run Phillips curve downward.
C) long- run Phillips curve downward.
D) long- run Phillips curve upward.

Question

Quizplus · Accepted Answer

An increase in expected inflation implies that workers and firms will negotiate higher nominal wages, resulting in higher production costs. This causes firms to reduce their output, which shifts the short-run Phillips curve upward.

An Increase in the Expected Inflation Rate Shifts the