When the expected rate of inflation falls,the short-run Phillips Curve
A)shifts upward.
B)shifts downward.
C)remains unaffected.
D)becomes vertical.

Question

Quizplus · Accepted Answer

When the expected rate of inflation falls, the short-run Phillips Curve shifts downward. This is because the lower expected inflation rate leads to lower wage and price expectations, which in turn leads to lower levels of actual inflation at any given level of unemployment. Therefore, the relationship between unemployment and inflation becomes less steep, and the Phillips Curve shifts downward.

When the Expected Rate of Inflation Falls,the Short-Run Phillips Curve