If aggregate demand increases and expectations regarding inflation remain constant:
A) the long- run Phillips curve shifts to the right.
B) the economy moves left along the short- run Phillips curve.
C) the short- run Phillips curve shifts to the right.
D) the short- run Phillips curve shifts to the left.

Question

Quizplus · Accepted Answer

According to the Phillips curve, there is an inverse relationship between inflation and unemployment in the short run. Therefore, if aggregate demand increases (which leads to lower unemployment), the economy moves left along the short-run Phillips curve. Choices A, C, and D are incorrect because they refer to the long-run Phillips curve, which is vertical and does not shift due to changes in aggregate demand.

If Aggregate Demand Increases and Expectations Regarding Inflation Remain Constant