Which of the following leads to an rightward shift in the short- run Phillips curve?
I. a reduction in inflationary expectations
II. an increase in the natural unemployment rate
A) I only
B) II only
C) I and II
D) neither I nor II

Question

Quizplus · Accepted Answer

An increase in the natural unemployment rate leads to a rightward shift in the short-run Phillips curve. This is because as the economy approaches full employment and the unemployment rate falls, the cost of hiring workers increases, leading to higher wages and higher inflation. Conversely, if the natural unemployment rate increases due to factors such as technological change or demographic shifts, then the economy can sustain a higher rate of unemployment without generating inflationary pressures. A reduction in inflationary expectations (as in choice I) would shift the Phillips curve downward, not to the right.

Which of the Following Leads to an Rightward Shift in the Short-