If the natural unemployment rate increases, then the short- run Phillips curve shifts and the long- run Phillips curve shifts .
A) rightward; leftward
B) leftward; leftward
C) rightward; rightward
D) leftward; rightward

Question

Quizplus · Accepted Answer

An increase in natural unemployment rate indicates a decrease in potential output or economic growth, which means there will be fewer job opportunities and higher unemployment in the short run. As a result, the short-run Phillips curve will shift rightward. However, in the long run, wages and prices adjust to the new equilibrium level, and the economy returns to its natural rate of unemployment. Therefore, the long-run Phillips curve will shift rightward as well, indicating that the relationship between inflation and unemployment is weaker in the long run.

If the Natural Unemployment Rate Increases, Then the Short- Run