How will an increase in the expected inflation rate affect the Phillips curve?
A) The short-run Phillips curve will shift upward and to the right.
B) The short-run Phillips curve will shift downward and to the left.
C) The short-run Phillips curve will NOT shift unless the unemployment rate changes.
D) The short-run Phillips curve will become flatter.

Question

How will an increase in the expected inflation rate affect the Phillips curve?  
A) The short-run Phillips curve will shift upward and to the right. 
B) The short-run Phillips curve will shift downward and to the left. 
C) The short-run Phillips curve will NOT shift unless the unemployment rate changes. 
D) The short-run Phillips curve will become flatter.

Quizplus · Accepted Answer

An increase in expected inflation rate will shift the short-run Phillips curve upward and to the right because at any given level of unemployment, workers will demand higher wages to compensate for the expected increase in inflation, which will result in higher prices and a higher rate of inflation. This means that the trade-off between inflation and unemployment will be worse, leading to higher levels of inflation at any given level of unemployment.

How Will an Increase in the Expected Inflation Rate Affect