Use the table below to answer the following questions.
Table 28.4.2

-The economy's natural unemployment rate is 4 percent. Table 28.4.2 gives some points on the economy's short-run Phillips curve. If the expected inflation rate rises to 8 percent a year,
A)the long-run Phillips curve shifts leftward.
B)the short-run Phillips curve shifts upward.
C)the short-run Phillips curve shifts downward.
D)Both A and B are correct.
E)Both A and C are correct.

Question

Use the table below to answer the following questions.
Table 28.4.2
 
-The economy's natural unemployment rate is 4 percent. Table 28.4.2 gives some points on the economy's short-run Phillips curve. If the expected inflation rate rises to 8 percent a year,
A)the long-run Phillips curve shifts leftward. 
B)the short-run Phillips curve shifts upward. 
C)the short-run Phillips curve shifts downward. 
D)Both A and B are correct. 
E)Both A and C are correct.

Quizplus · Accepted Answer

An increase in the expected inflation rate causes the short-run Phillips curve to shift upward. This is because in the short run, firms and workers may not accurately anticipate the increase in inflation, so wages and prices adjust more slowly. As a result, higher inflation expectations lead to higher actual inflation in the short run, and the Phillips curve shifts upward. Choice A is incorrect because the long-run Phillips curve is determined by the economy's natural rate of unemployment and is not affected by changes in expected inflation. Choice C is incorrect because a decrease in the natural rate of unemployment or an increase in aggregate supply may cause the short-run Phillips curve to shift downward, but changes in expected inflation do not have this effect.

Use the Table Below to Answer the Following Questions