Suppose that weather around the world is especially good next year, so farmers have unusually good crops. What might we expect that this will do to the short-run and long-run Phillips curves?
A) This will shift both the short-run and long-run Phillips curves to the right.
B) This will shift both the short-run and long-run Phillips curves to the left.
C) This will shift the short-run Phillips curve to the left, but not affect the long-run Phillips curve.
D) This will shift the long-run Phillips curve to the left, but not affect the short-run Phillips curve.

Question

Quizplus · Accepted Answer

The short-run Phillips curve may shift to the left due to lower inflation expectations from increased supply of agricultural products, reducing costs for food and possibly other goods. However, the long-run Phillips curve is not affected by short-term supply changes, as it is determined by factors like technology, labor market institutions, and policy, which are not influenced by temporary changes in weather or crop yields.

Suppose That Weather Around the World Is Especially Good Next