Figure 35-9. 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 35-9. Faced with the shift of the Phillips curve from PC1 to PC2, policymakers will
A) ask whether the shift is temporary or permanent.
B) be concerned with how people adjust their expectations of inflation as a result of the shift.
C) face, as well, a decision as to whether to accommodate the shock.
D) All of the above are correct.

Question

Figure 35-9. 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 35-9. Faced with the shift of the Phillips curve from PC1 to PC2, policymakers will
A) ask whether the shift is temporary or permanent. 
B) be concerned with how people adjust their expectations of inflation as a result of the shift. 
C) face, as well, a decision as to whether to accommodate the shock. 
D) All of the above are correct.

Quizplus · Accepted Answer

Policymakers will most likely consider all of the options presented in the answer choices. They will need to determine whether the shift in the Phillips curve is temporary or permanent, as this will affect their response. They will also need to be concerned about how people adjust their expectations of inflation, as this can affect the effectiveness of policy responses. Finally, policymakers will need to decide whether to accommodate the shock, which will depend on the specific circumstances of the economy at the time.