If the expected inflation rate is unchanged,a fall in the natural rate of unemployment would
A)shift the Phillips curve to the right.
B)not shift the Phillips curve.
C)shift the Phillips curve to the left.
D)shift the Phillips curve to the left and shift the long-run Phillips curve to the right.

Question

Quizplus · Accepted Answer

A fall in the natural rate of unemployment would indicate a stronger labor market with lower unemployment, which would increase the bargaining power of workers and put upward pressure on wages, leading to higher inflation. This would shift the Phillips curve to the left. The expected inflation rate remaining unchanged means that the curve would shift horizontally without rotating, unlike option D which suggests a shift in both the short-run and long-run Phillips curves.

If the Expected Inflation Rate Is Unchanged,a Fall in the Natural