An increase in price expectations shifts the Phillips curve upward and makes the inflation unemployment trade-off less favourable.

Question

Quizplus · Accepted Answer

An increase in price expectations implies that workers and firms anticipate higher inflation in the future, which leads to an upward shift in the Phillips curve. This means that for any given level of unemployment, the economy will experience a higher rate of inflation, making the inflation unemployment trade-off less favourable.

An Increase in Price Expectations Shifts the Phillips Curve Upward