An unanticipated decrease in aggregate demand will cause an upward shift in the short-run Phillips curve.

Question

Quizplus · Accepted Answer

An unanticipated decrease in aggregate demand will cause a downward shift in the short-run Phillips curve, not an upward shift. This is because the decrease in aggregate demand leads to a decrease in prices, causing inflation to fall in the short run. As a result, the Phillips curve shifts down, reflecting the lower level of inflation associated with any given level of unemployment.

An Unanticipated Decrease in Aggregate Demand Will Cause an Upward