Suppose an economy experiences a permanent increase in its expected inflation rate. As a result, there is
A)a downward movement along the short-run Phillips curve.
B)an upward movement along the short-run Phillips curve.
C)no change at all to the short-run Phillips curve.
D)a downward shift of the short-run Phillips curve.
E)an upward shift of the short-run Phillips curve.

Question

Quizplus · Accepted Answer

A permanent increase in the expected inflation rate leads to an upward shift of the short-run Phillips curve as higher expected inflation increases the inflation rate for any given level of unemployment.

Suppose an Economy Experiences a Permanent Increase in Its Expected