The short-run Phillips curve shifted during the 1970s primarily because of
A)the two large oil price shocks.
B)the changing demographics of the population.
C)tight monetary policy.
D)easy fiscal policy.

Question

Quizplus · Accepted Answer

The two large oil price shocks in the 1970s caused a significant increase in the cost of production, which led to a decrease in aggregate supply and a rightward shift of the short-run Phillips curve. This resulted in stagflation, with higher inflation and higher unemployment. Tight monetary policy was implemented as a response to the resulting high inflation but did not cause the shift in the Phillips curve. Demographics and fiscal policy were not significant factors in the shift of the Phillips curve.

The Short-Run Phillips Curve Shifted During the 1970s Primarily Because