In the short run, an increase in inflation initiated by the Reserve Bank and not matched by an increase in the expected inflation rate results in ________ in the long-run Phillips curve and ________ in the short-run Phillips curve.
A) a rightward shift; a downward shift
B) a rightward shift; an upward shift
C) no change; a downward shift
D) no change; no change
E) a leftward 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. In the short run, an increase in inflation without a change in expected inflation does not shift the curve but moves along it.

In the Short Run, an Increase in Inflation Initiated by the Reserve