Figure 17-2
-Refer to Figure 17-2.Suppose the economy is at point C in the figure above.If workers adjust their expectations of inflation,which of the following will be true?

Question

Figure 17-2 
-Refer to Figure 17-2.Suppose the economy is at point C in the figure above.If workers adjust their expectations of inflation,which of the following will be true?

Quizplus · Accepted Answer

If workers adjust their expectations of inflation, the short-run Phillips curve will shift to the left. This is because if workers expect lower inflation, they will demand lower wage increases, which will in turn reduce the cost pressures faced by firms and shift the Phillips curve leftward. This shift implies that for any given level of unemployment, the economy will experience lower inflation. Therefore, the economy will move from point C to a point to the left of the current Phillips curve, such as point A. The other options are not necessarily true based on the given information.

Figure 17-2 -Refer to Figure 17-2.Suppose the Economy Is at Point C