An increase in inflationary expectations _____
A) shifts the short-run Phillips curve up and to the right, away from the origin.
B) shifts the short-run Phillips curve up and to the right, closer to the origin.
C) shifts the short-run Phillips curve up and to the left, away from the origin.
D) shifts the long-run Phillips curve up and to the right, away from the origin.
E) shifts the long-run Phillips curve up and to the right, closer to the origin.

Question

Quizplus · Accepted Answer

An increase in inflationary expectations means that workers and firms will begin to expect higher inflation in the future. In response, workers will demand higher wages, and firms will increase prices, leading to higher inflation in the short run. This leads to an upward shift of the short-run Phillips curve, indicating that higher inflation rates are associated with higher rates of unemployment. The shift is to the right because it shows that at any given rate of unemployment, the expected inflation rate is higher than before.

An Increase in Inflationary Expectations _____