A decrease in the expected inflation rate will

Question

Quizplus · Accepted Answer

A decrease in the expected inflation rate will shift the short-run Phillips curve to the left, meaning that at any given level of unemployment, there is now a lower expected inflation rate. This happens because a decrease in expected inflation rate implies that there is less pressure on firms to increase wages and prices. Thus, the short-run Phillips curve shifts leftward, implying that a lower inflation rate can be achieved with a lower unemployment rate, all else constant.

A Decrease in the Expected Inflation Rate Will