Which figure shows the correct effect on the Phillips curve when the domestic currency depreciates?

Question

Quizplus · Accepted Answer

Option B shows the correct effect on the Phillips curve when the domestic currency depreciates. As a result of currency depreciation, there is an increase in aggregate demand, leading to higher inflation but lower unemployment. This is represented by a movement along the Phillips curve from point A to point B in the diagram. Option A represents a leftward shift in the Phillips curve, which could occur due to a decrease in the natural rate of unemployment or a negative supply shock. Option C represents a rightward shift in the Phillips curve, which could occur due to an increase in the natural rate of unemployment or a positive supply shock. Option D shows a shift upward in the Phillips curve, which could indicate an increase in inflation expectations.

Which Figure Shows the Correct Effect on the Phillips Curve