A decrease the price of foreign oil
A)shifts the short run Phillips curve downward, and makes the unemployment inflation trade-off less favourable.
B)shifts the short run Phillips curve upward, and makes the unemployment inflation trade-off less favourable.
C)shifts the short run Phillips curve upward, and makes the unemployment inflation trade-off more favourable.
D)shifts the short run Phillips curve downward, and makes the unemployment inflation trade-off more favourable.

Question

Quizplus · Accepted Answer

A decrease in the price of foreign oil would lead to lower production costs, and therefore lower prices for domestically produced goods and services. This would lead to a lower level of inflation, which would shift the short run Phillips curve downward. Additionally, as inflation decreases, the unemployment inflation trade-off becomes more favourable, as there is less of a need for the central bank to increase interest rates to combat inflation, which would lead to higher unemployment. Therefore, the correct answer is D.

A Decrease the Price of Foreign Oil