If inflation increases under conditions of static expectations of inflation,
A) the Phillips curve will shift to the right, further exacerbating the inflation problem.
B) the Phillips curve will shift to the left, improving the inflation-unemployment situation.
C) the Phillips curve will remain in place and unemployment will decrease.
D) the monetary policy reaction function will shift to the right.

Question

Quizplus · Accepted Answer

Under static expectations, the Phillips curve does not shift; instead, there is movement along the curve, leading to lower unemployment as inflation increases.

If Inflation Increases Under Conditions of Static Expectations of Inflation