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. Subsequent to the shift of the Phillips curve from PC₁ to PC₂, the curve will soon shift back to PC₁ if people perceive the

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. Subsequent to the shift of the Phillips curve from PC₁ to PC₂, the curve will soon shift back to PC₁ if people perceive the

Quizplus · Accepted Answer

If people perceive the increase in the inflation rate as a temporary aberration, they are less likely to adjust their inflation expectations and demand higher wages, which would shift the Phillips curve back to its original position. This means that the short-run aggregate supply curve would return to its original position, and the economy would return to its previous level of output and inflation.