If the natural unemployment rate decreases, then the short-run Phillips curve ________ and the long-run Phillips curve ________.
A) does not shift; shifts leftward
B) shifts leftward; shifts leftward
C) shifts rightward; shifts leftward
D) shifts rightward; shifts rightward
E) shifts leftward; does not shift

Question

Quizplus · Accepted Answer

If the natural unemployment rate decreases, the short-run Phillips curve shifts leftward because there is a decrease in the unemployment rate, leading to an increase in inflation. However, the long-run Phillips curve does not shift, as there is no permanent relationship between unemployment and inflation in the long run.

If the Natural Unemployment Rate Decreases, Then the Short-Run Phillips