If the public correctly perceives that the central bank will reduce inflation,then
A)the short-run Phillips curve shifts right,and the sacrifice ratio will be higher.
B)the short-run Phillips curve shifts right,and the sacrifice ratio will be lower.
C)the short-run Phillips curve shifts left,and the sacrifice ratio will be higher.
D)the short-run Phillips curve shifts left,and the sacrifice ratio will be lower.

Question

Quizplus · Accepted Answer

If the public correctly perceives that the central bank will reduce inflation, it will lead to a shift in the short-run Phillips curve to the left, indicating that lower unemployment can be achieved at a lower sacrifice ratio. This is because if the public expects the central bank to reduce inflation, they will anticipate a decrease in prices and adjust their behavior accordingly, leading to lower inflation expectations and cost-push pressures. As a result, the central bank can pursue a more expansionary monetary policy with lower sacrifice ratios.

If the Public Correctly Perceives That the Central Bank Will