The shift to the right of the Phillips curve in the 1970s and its leftward shift in the middle to late 1990s was in part caused by
A) the impact of government-imposed incomes policies.
B) the fact that the money supply remained constant despite price level changes over these years.
C) shifts in the aggregate supply curve.
D) changes in the way we measure inflation and unemployment rates.
E) variations in the international value of the dollar.

Question

Quizplus · Accepted Answer

The shift to the right of the Phillips curve in the 1970s was caused by shifts in the aggregate supply curve, specifically by supply shocks such as the oil crisis. These shocks increased production costs and reduced aggregate supply, causing a higher price level at every level of unemployment. The leftward shift in the middle to late 1990s was also caused by shifts in the aggregate supply curve, specifically by improvements in productivity, technology, and labor force participation. These improvements lowered production costs, increased aggregate supply, and reduced the price level at every level of unemployment. The other choices are not as relevant or influential in causing the shifts in the Phillips curve.

The Shift to the Right of the Phillips Curve in the 1970s