If expectations regarding inflation change, an expansionary fiscal policy causes:
A) the short- run Phillips curve to shift.
B) a movement along the short- run Phillips curve.
C) the long- run Phillips curve to shift.
D) the short- run Phillips curve to remain constant.

Question

Quizplus · Accepted Answer

If expectations regarding inflation change, the short-run Phillips curve will shift in response to an expansionary fiscal policy. This is because if inflation expectations increase, workers and firms will adjust their behavior accordingly and demand higher wages and prices in the short run. This will lead to a higher level of inflation for any given level of unemployment, causing the Phillips curve to shift.

If Expectations Regarding Inflation Change, an Expansionary Fiscal Policy Causes