The Canadian short-run Phillips curve ________ when the expected inflation rate rises and ________ when the expected inflation rate falls. The Canadian short-run Phillips curve ________ when the natural unemployment rate increases and ________ when the natural unemployment rate decreases.
A)shifts downward; shifts upward; shifts rightward; shifts leftward
B)does not shift; does not shift; shifts rightward; shifts leftward
C)shifts upward; shifts downward; does not shift; does not shift
D)shifts upward; shifts downward; shifts rightward; shifts leftward
E)shifts upward; does not shift; shifts rightward; does not shift

Question

Quizplus · Accepted Answer

According to the short-run Phillips curve relationship, when the expected inflation rate rises, the curve shifts upward. This is because workers and firms adjust their behavior based on their expectations of future inflation, causing prices and wages to rise faster than they would have otherwise, leading to a higher inflation rate at any given level of unemployment. Conversely, when expected inflation rate falls, the short-run Phillips curve shifts downward. This is because workers and firms adjust their behavior based on their expectations of future inflation, causing prices and wages to rise slower than they would have otherwise, leading to a lower inflation rate at any given level of unemployment.

Similarly, when the natural unemployment rate increases, the short-run Phillips curve shifts rightward. This is because there is more unemployment pressure, which leads to a lower inflation rate at any given level of unemployment. Conversely, when the natural unemployment rate decreases, the short-run Phillips curve shifts leftward. This is because there is less unemployment pressure, which leads to a higher inflation rate at any given level of unemployment.

The Canadian Short-Run Phillips Curve ________ When the Expected Inflation