Consider a nation experiencing the relationship illustrated by the short-run Phillips curve. An increase in both unemployment and inflation in this nation over the next ten years can be explained by:
A) a downward movement along the short-run Phillips curve.
B) a series of outward shifts of the short-run Phillips curve.
C) an upward movement along the short-run Phillips curve.
D) a series of inward shifts of the short-run Phillips curve.
E) a complete change in the slope of the Phillips curve.

Question

Quizplus · Accepted Answer

An increase in both unemployment and inflation over the next ten years would suggest a long-term change in the economy that leads to a series of outward shifts of the short-run Phillips curve. This can be caused by factors such as an increase in production costs or a decrease in productivity, which would lead to both higher prices and higher unemployment in the long run. A movement along the short-run Phillips curve would only explain a temporary tradeoff between unemployment and inflation, not a long-term increase in both.

Consider a Nation Experiencing the Relationship Illustrated by the Short-Run