The Cleveland Federal Reserve Bank's estimate of expected inflation has fallen from 3.5 percent in 2000 to 1.5 percent in 2013. This fall means that
A) the short-run Phillips curve shifted upward.
B) the short-run Phillips curve shifted downward.
C) there was a movement along the short-run Phillips curve.
D) the natural unemployment rate increased.

Question

Quizplus · Accepted Answer

The fall in expected inflation from 3.5 percent to 1.5 percent suggests that the short-run Phillips curve shifted downward, indicating lower inflation at each level of unemployment. This is because the Phillips curve illustrates the inverse relationship between the rate of inflation and the rate of unemployment, and a downward shift typically signifies reduced inflation expectations for any given level of unemployment.

The Cleveland Federal Reserve Bank's Estimate of Expected Inflation Has