An increase in price expectations shifts the short-run Phillips curve, but not the long-run Phillips curve.

Question

Quizplus · Accepted Answer

An increase in price expectations would shift the short-run Phillips curve, as firms would increase their prices in response to the expected increase in demand. However, in the long run, the Phillips curve is vertical and not affected by price expectations, as inflation depends only on the natural rate of unemployment and not on temporary movements in demand.

An Increase in Price Expectations Shifts the Short-Run Phillips Curve