Shifts in the aggregate supply function can cause shifts in the Phillips curve.

Question

Quizplus · Accepted Answer

Shifts in the aggregate supply function can cause shifts in the Phillips curve because they affect the overall level of inflation in the economy. When there is a shift in the aggregate supply function, either due to changes in production costs or changes in technology, it can affect the level of output and prices in the economy, which in turn can affect the unemployment rate and inflation rate. As a result, the relationship between unemployment and inflation, as shown by the Phillips curve, may shift. For example, an increase in aggregate supply due to lower production costs may lead to a decrease in the unemployment rate and a decrease in the inflation rate, shifting the Phillips curve to the left.

Shifts in the Aggregate Supply Function Can Cause Shifts in the Phillips