In the early 1970s, the short-run Phillips curve shifted
A)right as inflation expectations rose.
B)right as inflation expectations fell.
C)left as inflation expectations rose.
D)left as inflation expectations fell.

Question

Quizplus · Accepted Answer

In the early 1970s, inflation expectations rose due to supply shocks caused by the oil crisis. As households and firms anticipated higher prices, they adjusted their behavior by demanding higher wages and prices, which shifted the short-run Phillips curve rightward, indicating that any given level of unemployment would be associated with a higher rate of inflation.

In the Early 1970s, the Short-Run Phillips Curve Shifted