During the 1970s when both the unemployment rate and inflation rate rose, it is reasonable to conclude that
A) only the short- run Phillips curve shifted.
B) only the long- run Phillips curve shifted.
C) both the short- run and long- run Phillips curves shifted rightward.
D) both the short- run and long- run Phillips curves shifted leftward.

Question

Quizplus · Accepted Answer

Both the short-run and long-run Phillips curves shifted rightward as the economy experienced stagflation in the 1970s, which meant higher unemployment rates and higher inflation rates at the same time. This was due to a combination of supply shocks such as higher oil prices, and demand-side policies that increased aggregate demand without increasing aggregate supply. This shift in both Phillips curves represents a shift from the original Phillips curve, which only showed a trade-off between unemployment and inflation in the short run.

During the 1970s When Both the Unemployment Rate and Inflation