A decrease in the expected inflation rate shifts the short-run Phillips curve
A) downward and shifts the long-run Phillips curve leftward.
B) upward and shifts long-run Phillips curve rightward.
C) downward and creates a movement downward along the long-run Phillips curve.
D) upward and creates a movement upward along the long-run Phillips curve.

Question

Quizplus · Accepted Answer

A decrease in the expected inflation rate shifts the short-run Phillips curve downward, as lower inflation expectations reduce the pressure on wages and prices. This does not shift the long-run Phillips curve, which is vertical at the natural rate of unemployment, but rather results in a movement along it.

A Decrease in the Expected Inflation Rate Shifts the Short-Run