Along a short- run Phillips curve, suppose the expected inflation rate is 6 percent. If the inflation rate turns out to be 8 percent instead,
A) there is a movement downward along the curve.
B) the difference in the inflation rate does not affect the Phillips curve.
C) there is a movement upward along the curve.
D) there is a downward shift of the curve.

Question

Quizplus · Accepted Answer

An increase in actual inflation beyond expected inflation causes a movement upward along the short-run Phillips curve, as firms must increase wages to keep up with rising prices. A downward movement along the curve would occur if actual inflation was less than expected inflation. This does not lead to a shift in the Phillips curve itself. Therefore, the correct answer is choice C.

Along a Short- Run Phillips Curve, Suppose the Expected Inflation