-In the above figure, suppose that the economy is at point C. If the inflation rate is lower than expected,
A) the LRPC will shift rightward.
B) the SRPC will shift downward.
C) the SRPC will shift upward.
D) Neither the LRPC nor the SRPC will shift.

Question

-In the above figure, suppose that the economy is at point C. If the inflation rate is lower than expected,
A) the LRPC will shift rightward. 
B) the SRPC will shift downward. 
C) the SRPC will shift upward. 
D) Neither the LRPC nor the SRPC will shift.

Quizplus · Accepted Answer

Neither the Long-Run Phillips Curve (LRPC) nor the Short-Run Phillips Curve (SRPC) shifts due to changes in expected inflation. The position of the LRPC is determined by the natural rate of unemployment and is not affected by inflation expectations. The SRPC might shift due to changes in actual inflation, but a change in expected inflation would instead move the economy along the SRPC, not shift the curve itself.

-In the Above Figure, Suppose That the Economy Is at Point