An increase in expected inflation shifts the
A)short-run Phillips curve right.
B)short-run Phillips curve left.
C)long-run Phillips curve right.
D)long-run Phillips curve left.

Question

Quizplus · Accepted Answer

An increase in expected inflation shifts the short-run Phillips curve right. This is because workers and firms adjust their expectations of inflation and wages, resulting in higher wages and prices in the short run. This means that unemployment will temporarily rise, and the economy will need to adjust to a new equilibrium level of output and employment. However, in the long run, this shift in the Phillips curve will also lead to an increase in inflation expectations, which will shift the curve further rightward, creating a cycle of higher inflation and unemployment.

An Increase in Expected Inflation Shifts the