Assume that there is a positive supply shock,such as an increase in the productivity of labor.What impact will this have on the short-run and long-run Phillips curve? What will be the observed relationship between inflation and unemployment? Provide a graph of the Phillips curve and AD/AS to illustrate.

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Quizplus · Accepted Answer

The Answer is An increase in productivity will shift the aggregate supply curve to the right as well as shift both the short-run and long-run Phillips curve upward,resulting in higher inflation and lower unemployment.This runs counter to the traditional Phillips curve relationship between inflation and unemployment.

Assume That There Is a Positive Supply Shock,such as an Increase