-An economy's natural unemployment rate is 4 percent. The table above gives some points on the economy's short-run Phillips curve. If the expected inflation rate becomes 8 percent per year, then the

Question

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When the expected inflation rate increases, the short-run Phillips curve shifts upward because workers and firms adjust their expectations and demand higher wages and prices to compensate for the higher expected inflation, leading to a higher actual inflation rate at each level of unemployment.

-An Economy's Natural Unemployment Rate Is 4 Percent