An increase in the expected inflation rate will:
A)shift the short-run Phillips curve upward and to the right.
B)shift the short-run Phillips curve downward and to the left.
C)not shift the short-run Phillips curve unless the unemployment rate changes.
D)cause the unemployment rate associated with each inflation rate to decrease.
E)tend to increase production unless the actual inflation rate also increases.

Question

Quizplus · Accepted Answer

An increase in expected inflation means that firms and workers will adjust their behavior accordingly, leading to a higher rate of inflation for any given unemployment rate. This will shift the short-run Phillips curve upward and to the right, meaning that to achieve any given rate of inflation, a higher unemployment rate will be required.

An Increase in the Expected Inflation Rate Will