The government estimates that the natural unemployment rate has increased from 4.8 percent in 2006 to 5.2 percent in late 2012. If these estimates are accurate, the short-run Phillips curve has shifted ________ and the long-run Phillips curve has shifted ________.

Question

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The short-run Phillips curve shifts rightward because a higher natural rate of unemployment suggests a less favorable trade-off between inflation and unemployment in the short run. The long-run Phillips curve is vertical at the natural rate of unemployment, so if the natural rate increases, the long-run Phillips curve also shifts rightward.

The Government Estimates That the Natural Unemployment Rate Has Increased