If the natural unemployment rate increases, the long-run Phillips curve ________, the short-run Phillips curve ________, and the expected inflation rate ________.
A)does not shift; does not shift; does not change
B)shifts rightward; shifts rightward; does not change
C)does not shift; shifts rightward; rises
D)shifts rightward; curve does not shift; falls
E)shifts rightward; shifts rightward; falls

Question

Quizplus · Accepted Answer

An increase in the natural unemployment rate means the economy can only sustain higher unemployment in the long run. This leads to a rightward shift of the long-run Phillips curve. The short-run Phillips curve also shifts rightward, as higher unemployment leads to lower pressure on wages and prices. However, the expected inflation rate is not directly affected by the change in the natural unemployment rate, so it does not change.

If the Natural Unemployment Rate Increases, the Long-Run Phillips Curve