Everywhere to the right of the long-run Phillips Curve
A)actual inflation is less than expected inflation and the expected inflation rate will be reduced.
B)actual inflation is less than expected inflation and the expected inflation rate will be raised.
C)actual inflation is greater than expected inflation and the expected inflation rate will be raised.
D)actual inflation is greater than expected inflation and the expected inflation rate will be reduced.

Question

Quizplus · Accepted Answer

The long-run Phillips Curve represents the trade-off between unemployment and inflation in the long run, where the expected inflation rate is equal to the actual inflation rate. If actual inflation is less than expected inflation, it means that the economy is operating to the right of the long-run Phillips Curve, indicating that there is an unexpected decrease in demand or an increase in supply, leading to less pressure on prices. This will result in a decrease in the expected inflation rate since the public will adjust their expectations based on the actual data.

Everywhere to the Right of the Long-Run Phillips Curve