Accelerating inflation causes nominal wages to rise, shifting the short-run aggregate supply curve to the _____ and the Phillips curve to the _____.

Question

Quizplus · Accepted Answer

Accelerating inflation causes nominal wages to rise, which increases the cost of production for firms. This leads to a decrease in the quantity of goods and services that firms are willing to supply at any given price level, shifting the short-run aggregate supply curve to the left. The Phillips curve, which shows the inverse relationship between the rate of inflation and the rate of unemployment, shifts to the right as inflation accelerates, indicating that for any given rate of unemployment, the inflation rate is higher.

Accelerating Inflation Causes Nominal Wages to Rise, Shifting the Short-Run