If workers and firms raise their inflation expectations,

Question

Quizplus · Accepted Answer

According to the theory of the Phillips curve, there is an inverse relationship between unemployment and inflation. If workers and firms raise their inflation expectations, they will demand higher wages and prices, leading to an increase in the overall level of prices. As a result, the short-run Phillips curve will shift upward, indicating that a higher level of inflation is associated with any given level of unemployment.

If Workers and Firms Raise Their Inflation Expectations