A decrease in the natural rate of unemployment will
A) result in a decrease in the inflation rate along the Phillips curve.
B) shift the Phillips curve to the right.
C) shift the Phillips curve to the left.
D) result in an increase in the inflation rate along the Phillips curve.

Question

Quizplus · Accepted Answer

The Phillips curve illustrates the inverse relationship between the rate of inflation and the rate of unemployment. A decrease in the natural rate of unemployment, which is the lowest level of unemployment that an economy can sustain without causing inflation to rise, would shift the Phillips curve to the left. This shift indicates that for any given rate of inflation, the rate of unemployment is lower.

A Decrease in the Natural Rate of Unemployment Will