A country reports that its inflation rate and unemployment rate have both increased. These changes could be the result of
A) a movement downward along the short-run Phillips curve.
B) a leftward shift of the long-run Phillips curve.
C) a downward shift of the short-run Phillips curve.
D) a movement upward along the short-run Phillips curve.
E) an upward shift of the short-run Phillips curve.

Question

Quizplus · Accepted Answer

An upward shift of the short-run Phillips curve indicates that for any given rate of unemployment, the inflation rate is higher. This scenario can occur due to factors like supply shocks or increases in production costs, leading to both higher inflation and unemployment simultaneously.

A Country Reports That Its Inflation Rate and Unemployment Rate