Suppose an economy had been operating along a given short-run Phillips curve for several years and then experienced a year of stagflation. The year of stagflation would _____
A) be represented as an upward movement along the short-run Phillips curve.
B) be represented as a downward movement along the short-run Phillips curve.
C) be represented as a point above the short-run Phillips curve.
D) be represented as a point below the short-run Phillips curve.
E) correspond to the origin.

Question

Quizplus · Accepted Answer

Stagflation refers to a situation where there is a combination of high inflation and high unemployment, which is not depicted by the short-run Phillips curve. This means that the economy is operating at a point above the short-run Phillips curve, indicating that the inflation rate is higher than what would be expected given the level of unemployment. Therefore, the year of stagflation would be represented as a point above the short-run Phillips curve.

Suppose an Economy Had Been Operating Along a Given Short-Run