-In the above figure, what might have shifted the short-run Phillips curve from SRPC₁ to SRPC₂ while leaving the long-run Phillips curve unchanged at LRPC? A) The natural unemployment rate increased. B) The natural unemployment rate decreased. C) The expected inflation rate increased. D) The expected inflation rate decreased.

Question

Quizplus · Accepted Answer

The shift in the short-run Phillips curve from SRPCS1 to SRPCS2, while leaving the long-run Phillips curve unchanged, indicates an increase in the expected inflation rate. This is because the short-run Phillips curve reflects the trade-off between inflation and unemployment given people's expectations of inflation. An increase in expected inflation shifts the curve outward, as it takes higher inflation rates at each level of unemployment to maintain the same trade-off.

-In the Above Figure, What Might Have Shifted the Short-Run