If the public correctly perceives that the central bank will reduce inflation,then
A)the short-run Phillips curve shifts right,and unemployment will rise by more than otherwise.
B)the short-run Phillips curve shifts right,and unemployment will rise by less than otherwise.
C)the short-run Phillips curve shifts left,and unemployment will rise by more than otherwise.
D)the short-run Phillips curve shifts left,and unemployment will rise by less than otherwise.

Question

Quizplus · Accepted Answer

When the public correctly perceives that the central bank will reduce inflation, they will adjust their expectations and anticipate lower inflation in the future. This will shift the short-run Phillips curve to the left, meaning that at any given level of expected inflation, there will be a lower level of unemployment. Therefore, unemployment will rise by less than otherwise.

If the Public Correctly Perceives That the Central Bank Will