An increase in expected inflation would cause a Phillips curve drawn with the inflation rate measured along the vertical axis to
A) shift to the right by an amount equal to the increase.
B) shift to the left by an amount equal to the increase.
C) shift down by an amount equal to the increase.
D) shift up by an amount equal to the increase.
E) shift up and to the right by an amount equal to the increase measured along a 45-degree line from the origin.

Question

Quizplus · Accepted Answer

An increase in expected inflation would cause the Phillips curve, which shows the inverse relationship between the rate of inflation and the rate of unemployment, to shift up. This is because higher expected inflation would be factored into wage demands and price settings, leading to a higher rate of inflation at every level of unemployment.

An Increase in Expected Inflation Would Cause a Phillips Curve