Expectations of a higher inflation rate shift the short-run aggregate supply curve to the _____, changing the trade-off between inflation and unemployment. As a result, the short-run Phillips curve shifts _____.
A) left; down
B) right; up
C) left; up
D) right; down

Question

Quizplus · Accepted Answer

Expectations of a higher inflation rate shift the short-run aggregate supply curve to the left because producers require higher prices to cover expected increases in costs. This shift worsens the trade-off between inflation and unemployment, leading to higher inflation at each level of unemployment, which is represented by an upward shift in the short-run Phillips curve.

Expectations of a Higher Inflation Rate Shift the Short-Run Aggregate