Along a short-run Phillips curve, suppose the expected inflation rate is 6 percent. If the actual inflation rate turns out to be 8 percent, then
A) there is a movement upward along the short-run Phillips curve.
B) there is a movement downward along the short-run Phillips curve.
C) there is a downward shift of the short-run Phillips curve.
D) None of the above answers are correct.

Question

Quizplus · Accepted Answer

When the actual inflation rate exceeds the expected inflation rate, it typically results in lower unemployment than anticipated at the original expected inflation rate, reflecting a movement upward along the short-run Phillips curve. This is because higher actual inflation can temporarily boost employment and reduce unemployment as workers and firms adjust to the unexpected increase in prices.

Along a Short-Run Phillips Curve, Suppose the Expected Inflation Rate