Suppose the expected inflation rate is 8 percent and the unemployment rate is 3 percent. If the inflation rate rises to 10 percent and the expected inflation rate does not change,
A) there will be a movement along the short-run Phillips curve.
B) the short-run Phillips curve will shift upward.
C) the natural unemployment rate will rise.
D) the short-run Phillips curve will shift downward.

Question

Quizplus · Accepted Answer

A movement along the short-run Phillips curve occurs when there is a change in the inflation rate while the expected inflation rate remains constant. In this case, the higher inflation rate of 10 percent means there will be a move up along the current short-run Phillips curve, given the initial unemployment rate of 3 percent.

Suppose the Expected Inflation Rate Is 8 Percent and the Unemployment