If the expected inflation rate is unchanged,a fall in the natural rate of unemployment would
A)shift the short-run Phillips curve to the right.
B)not shift the short-run Phillips curve.
C)shift the short-run Phillips curve to the left.
D)shift the short-run Phillips curve to the left and shift the long-run Phillips curve to the right.

Question

Quizplus · Accepted Answer

A fall in the natural rate of unemployment means that there is a higher level of labor market tightness and therefore more pressure on wages to increase. This would shift the short-run Phillips curve to the left, indicating that at any given level of expected inflation, the unemployment rate would be lower. However, the long-run Phillips curve would remain unchanged because inflation expectations would adjust over time to reflect the lower rate of unemployment.

If the Expected Inflation Rate Is Unchanged,a Fall in the Natural