If inflation increases and last year's inflation is expected to be this year's inflation,
A) the Phillips curve will shift to the right, further exacerbating the inflation problem.
B) the Phillips curve will shift to the left, improving the inflation-unemployment situation.
C) the Phillips curve will remain in place and unemployment will decrease.
D) the monetary policy reaction function will shift to the right.

Question

Quizplus · Accepted Answer

If inflation expectations rise, the short-run Phillips curve shifts to the right, indicating higher inflation for any given level of unemployment, worsening the inflation problem.

If Inflation Increases and Last Year's Inflation Is Expected to Be