A decrease in the expected inflation rate leads to__________in the long -run Phillips curve and__________ in the short-run Phillips curve.
A) a leftward shift; an upward shift
B) no shift; a downward shift
C) no shift; no shift
D) an upward shift; no shift

Question

Quizplus · Accepted Answer

In the long-run, the Phillips curve is vertical and does not shift with changes in expected inflation. In the short-run, a decrease in expected inflation leads to a downward shift in the Phillips curve as lower inflation expectations reduce wage and price setting, leading to lower actual inflation for a given level of unemployment.

A Decrease in the Expected Inflation Rate Leads To__________in the Long