If inflation expectations rise, how do the short-run Phillips curve and unemployment change?
A) The short-run Phillips curve shifts right, so that at any inflation rate unemployment is higher.
B) The short-run Phillips curve shifts left, so that at any inflation rate unemployment is higher.
C) The short-run Phillips curve shifts right, so that at any inflation rate unemployment is lower.
D) The short-run Phillips curve shifts left, so that at any inflation rate unemployment is lower.

Question

Quizplus · Accepted Answer

When inflation expectations rise, it creates an increase in the current inflation rate. This causes a shift in the short-run Phillips curve to the right, indicating that at any given inflation rate, there is now a higher level of unemployment.

If Inflation Expectations Rise, How Do the Short-Run Phillips Curve