As incorrectly low inflation expectations catch up with the higher actual inflation rate,the SRAS curve shifts __________ and the short-run Phillips curve shifts __________.

Question

Quizplus · Accepted Answer

As the actual inflation rate is higher than expected, the SRAS curve will shift leftward, indicating that suppliers need higher prices to produce the same amount of goods and services. This results in higher prices and higher inflation. The short-run Phillips curve relates the inflation rate and unemployment rate, and as inflation increases, unemployment decreases. Therefore, the short-run Phillips curve shifts upward, indicating a higher inflation rate for any given level of unemployment.

As Incorrectly Low Inflation Expectations Catch Up with the Higher