A leftward shift of the traditional Phillips curve suggests that:
A)the productivity of labour has decreased
B)a lower rate of inflation is now associated with each rate of unemployment than previously
C)cost-push inflation is present
D)a higher rate of inflation is now associated with each rate of unemployment than previously
E)demand-pull inflation is present

Question

Quizplus · Accepted Answer

A leftward shift of the Phillips curve implies that for any given level of unemployment, the rate of inflation is now lower than it was previously. This could happen due to a decrease in inflation expectations, an increase in productivity, or an increase in the natural rate of unemployment. Hence, the correct option is B, which states that a lower rate of inflation is now associated with each rate of unemployment than previously.

A Leftward Shift of the Traditional Phillips Curve Suggests That