A rise in the expected inflation rate leads to ________ in the long-run Phillips curve and ________ in the short-run Phillips curve.
A) an upward shift; no shift
B) a leftward shift; an upward shift
C) no shift; no shift
D) no shift; an upward shift

Question

Quizplus · Accepted Answer

In the long run, the Phillips curve is vertical, indicating no trade-off between inflation and unemployment, so it does not shift with changes in expected inflation. However, in the short run, an increase in expected inflation shifts the Phillips curve upward as higher inflation expectations lead to higher actual inflation at any given unemployment rate.

A Rise in the Expected Inflation Rate Leads to ________