Movements upward along the short-run Phillips curve result from
A) expected increases in the inflation rate.
B) unexpected decreases in the inflation rate.
C) unexpected increases in the inflation rate.
D) expected decreases in the inflation rate.

Question

Quizplus · Accepted Answer

Movements upward along the short-run Phillips curve occur when there are unexpected increases in the inflation rate. This is because in the short run, there is a trade-off between inflation and unemployment. When the inflation rate increases unexpectedly, firms may temporarily increase production and employment to meet the higher demand for their goods and services, causing a temporary decrease in unemployment. However, over time, workers will adjust their expectations and demand higher wages to compensate for the higher inflation rate, causing the Phillips curve to shift back upward in the long run.

Movements Upward Along the Short-Run Phillips Curve Result from