Given a Phillips Curve with stable and predictable inﬂation and unemployment rate trade-offs, it appears that
A) an expansionary ﬁscal policy can shift the curve to the left.
B) a tight money policy can shift the curve to the right.
C) manipulating aggregate demand through ﬁscal and monetary policies has the effect of causing a movement along the curve.
D) manipulating aggregate demand through ﬁscal and monetary policies has the effect of shifting the curve.

Question

Quizplus · Accepted Answer

DThe Phillips Curve illustrates the trade-off between inflation and unemployment, suggesting that policies affecting aggregate demand can either move the economy along the curve (C) or shift the curve entirely (D), depending on the nature and permanence of the policy changes. Expansionary or contractionary policies don't simply shift the curve left or right; they can also cause movements along the curve by affecting inflation and unemployment rates directly.

Given a Phillips Curve with Stable and Predictable Inﬂation and Unemployment