Lower than expected inflation rate:
A)shifts short-run Phillips curve to the right.
B)shifts short-run Phillips curve to the left.
C)shifts both short-run and long-run Phillips curve to the right.
D)shifts both short-run and long-run Phillips curve to the left.

Question

Lower than expected inflation rate:
A)​shifts short-run Phillips curve to the right.
B)​shifts short-run Phillips curve to the left.
C)​shifts both short-run and long-run Phillips curve to the right.
D)​shifts both short-run and long-run Phillips curve to the left.

Quizplus · Accepted Answer

Lower than expected inflation rate means that there is less pressure on firms to increase prices, which results in a leftward shift of the short-run Phillips curve. This shift corresponds to a lower equilibrium level of inflation and a higher level of unemployment in the short run. However, the long-run Phillips curve remains unchanged as inflation expectations adjust to the new actual inflation rate over time.

Lower Than Expected Inflation Rate