An increase in the expected rate of inflation would
A)shift the Phillips curve upward.
B)shift the Phillips curve downward.
C)shift the long-run Phillips curve to the right.
D)shift the long-run Phillips curve to the left.

Question

Quizplus · Accepted Answer

An increase in expected rate of inflation can cause an increase in actual inflation. This, in turn, would shift the short-run Phillips curve upward because at any level of unemployment, the expected inflation rate would be higher, resulting in higher inflationary pressures. However, the long-run Phillips curve would not be affected as it is vertical at the natural rate of unemployment.

An Increase in the Expected Rate of Inflation Would