On a graph with the inflation and unemployment rates as the axes, if an expansionary fiscal policy results in a decrease in unemployment with no shift of the Phillips curve,
A) inflation expectations must be static.
B) inflation expectations must be adaptive.
C) inflation expectations must be dynamic.
D) inflation expectations must be rational.

Question

Quizplus · Accepted Answer

If there is no shift in the Phillips curve, it implies that inflation expectations are static, meaning they do not change in response to fiscal policy.

On a Graph with the Inflation and Unemployment Rates as the Axes