Figure 17-8. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate."

-Refer to Figure 17-8. Faced with the shift of the Phillips curve from PC₁ to PC₂, policymakers will

Question

Figure 17-8. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate."

-Refer to Figure 17-8. Faced with the shift of the Phillips curve from PC₁ to PC₂, policymakers will

Quizplus · Accepted Answer

Policymakers will consider all of these factors when faced with a shift of the Phillips curve. They will need to determine whether the shift is temporary or permanent, because a temporary shift may not warrant a policy response. Policymakers will also be concerned with how people adjust their expectations of inflation, as this can affect the persistence of the shift. Lastly, policymakers will face a decision as to whether to accommodate the shock, for example, by increasing aggregate demand, or to let the economy adjust on its own.