Higher than expected rates of inflation cause the short-run Phillips curve to
A) equal the aggregate demand curve.
B) become horizontal.
C) remain stable.
D) shift further upward and out from the origin.
E) reflect the fact that, in the long run, the actual rate of unemployment remains below the natural rate of unemployment.

Question

Quizplus · Accepted Answer

Higher than expected rates of inflation cause the short-run Phillips curve to shift further upward and out from the origin. This means that at any given rate of unemployment, there will be a higher rate of inflation in the economy. This is because when inflation is higher than expected, workers and firms adjust their behavior, leading to higher costs of production and higher prices. Therefore, in the short run, higher inflation leads to a less favorable trade-off between inflation and unemployment.

Higher Than Expected Rates of Inflation Cause the Short-Run Phillips