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

Question

Quizplus · Accepted Answer

When inflation expectations rise, the short-run Phillips curve shifts right, indicating that at any given inflation rate, unemployment is higher than it was before. This reflects the idea that workers and firms adjust their expectations about inflation, leading to changes in wage and price setting behavior that result in higher unemployment for the same rate of inflation.

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