If inflation expectations rise,the short-run Phillips curve shifts
A)right,so that at any unemployment rate inflation is higher in the short run than before.
B)left,so that at any unemployment rate inflation is higher in the short run the before.
C)right,so that at any unemployment rate inflation is lower in the short run than before.
D)left,so that at any unemployment rate inflation is lower in the short run than before.

Question

Quizplus · Accepted Answer

The short-run Phillips curve shows the inverse relationship between unemployment and inflation. When inflation expectations rise, firms anticipate higher prices and adjust their prices and wages accordingly. This results in higher costs and prices, causing a rightward shift of the short-run Phillips curve. As a result, at any given unemployment rate, we would observe a higher level of inflation in the short run than before. Thus, the correct answer is choice A.

If Inflation Expectations Rise,the Short-Run Phillips Curve Shifts