The natural rate hypothesis concludes that when the inflation rate increases, then, in the short run, there is
A) an upward shift of the short-run Phillips curve.
B) a downward shift of the short-run Phillips curve.
C) an upward movement along the short-run Phillips curve.
D) a downward movement along the short-run Phillips curve.
E) no change at all in the short-run Phillips curve.

Question

Quizplus · Accepted Answer

An increase in the inflation rate, according to the natural rate hypothesis, results in an upward movement along the short-run Phillips curve. This is because the short-run Phillips curve illustrates the trade-off between inflation and unemployment for a given expectation of inflation. When actual inflation increases, it typically leads to lower unemployment in the short run, moving up along the curve.

The Natural Rate Hypothesis Concludes That When the Inflation Rate