Monetary Policy in Hyperion
In Hyperion the Department of Finance is responsible for monetary policy. Hyperion has had an inflation rate of 25% for many years.
-Refer to Monetary Policy in Hyperion.Suppose that the Hyperion Department of Finance undertakes a public relations campaign to convince people that they will soon change monetary policy to reduce inflation to 12.5%.If Hyperions believe their government then which,if any,curve(s)shift left?

Question

Quizplus · Accepted Answer

If people believe the government will reduce inflation, their expectations adjust, causing the short-run Phillips curve to shift left. The long-run Phillips curve remains vertical and does not shift.