Along a short-run Phillips curve, suppose the expected inflation rate is 6 percent. If the inflation rate turns out to be 8 percent instead
A) there is a movement upward along the short-run Phillips curve.
B) there is a movement downward along the short-run Phillips curve.
C) there is a downward shift of the short-run Phillips curve.
D) None of the above answers are correct.

Question

Quizplus · Accepted Answer

An increase in actual inflation relative to expected inflation leads to a movement upward along the short-run Phillips curve. This occurs because firms and workers adjust their expectations and demand higher wages and prices to compensate for the higher inflation rate.

Along a Short-Run Phillips Curve, Suppose the Expected Inflation Rate