According to the expectations-augmented Phillips curve model,the amount by which expansionary policies can lower the unemployment rate for every one percent increase in the inflation rate along a short-run Phillips curve,will hold only as long as private sector's expectations of inflation remains unchanged.When circumstances change and the public revise their expectations of inflation upward,the ___________ will shift ___________ and the rate of trade-off between unemployment and inflation will ___________.

Question

Quizplus · Accepted Answer

According to the question, if public expectations of inflation rise, the short-run Phillips curve will shift upward, meaning that the amount by which expansionary policies can lower the unemployment rate for every one percent increase in the inflation rate will decrease, leading to a worse trade-off between unemployment and inflation. This is consistent with option D. Option A and C are incorrect because the Phillips curve model refers to the short-run curve, not the long-run curve. Option B is incorrect because a downward shift in the short-run Phillips curve would imply that expansionary policies can have a greater effect on reducing unemployment for the same increase in inflation, which goes against the question's premise. Option E is also incorrect because an upward shift in the Phillips curve would imply a worse trade-off between unemployment and inflation, not an improvement.

According to the Expectations-Augmented Phillips Curve Model,the Amount by Which