The Phillips curve will shift down with ________ or ________.
A) a positive supply shock; an increase in expected inflation
B) a positive supply shock; a decrease in expected inflation
C) a negative supply shock; an increase in expected inflation
D) a negative supply shock; a decrease in expected inflation

Question

Quizplus · Accepted Answer

A positive supply shock increases the output of the economy and decreases the prices. This leads to a downward shift in the Phillips curve. Similarly, a decrease in expected inflation leads to a decrease in actual inflation, which also leads to a downward shift in the Phillips curve. A negative supply shock and an increase in expected inflation would shift the curve upwards. Therefore, option B is the correct answer as it includes both the factors that shift the Phillips curve downward.

The Phillips Curve Will Shift Down with ________ or ________

The Phillips Curve Will Shift Down with or