If inflation expectations rise, the short-run Phillips curve shifts
A)right, so that at any inflation rate output is higher in the short run than before.
B)left, so that at any inflation rate output is higher in the short run than before.
C)right, so that at any inflation rate output is lower in the short run than before.
D)left, so that at any inflation rate output 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, the level of output is lower than before. This reflects the trade-off between inflation and unemployment, suggesting that higher inflation expectations lead to higher actual inflation for the same level of output or unemployment.

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