Unemployment rates above the target rate of unemployment lead to:
A)an upward shift of the short-run Phillips curve.
B)a downward shift of the short-run Phillips curve.
C)a rightward shift of the long-run Phillips curve.
D)a leftward shift of the long-run Phillips curve.

Question

Quizplus · Accepted Answer

Unemployment rates above the target or natural rate of unemployment typically lead to a downward shift of the short-run Phillips curve. This is because higher unemployment usually correlates with lower inflation rates, suggesting that the economy might be underperforming, which in turn shifts the short-run Phillips curve downward as the relationship between unemployment and inflation adjusts.

Unemployment Rates Above the Target Rate of Unemployment Lead To