The Canadian long-run Phillips curve ________ when the expected inflation rate rises and ________ when the expected inflation rate falls. The Canadian long-run Phillips curve ________ when the natural unemployment rate increases and ________ when the natural unemployment rate decreases.
A)does not shift; does not shift; does not shift; does not shift
B)does not shift; does not shift; shifts rightward; shifts leftward
C)shifts upward; shifts downward; shifts rightward; shifts leftward
D)shifts rightward; shifts leftward; does not shift; does not shift
E)shifts rightward; shifts leftward; shifts rightward; shifts leftward

Question

Quizplus · Accepted Answer

According to the long-run Phillips curve, there is no trade-off between inflation and unemployment in the long run. Therefore, the curve does not shift when expected inflation changes. However, the curve does shift with changes in the natural unemployment rate. An increase in the natural unemployment rate will shift the curve to the right, indicating that higher levels of inflation are needed to maintain the same level of employment. A decrease in the natural unemployment rate will shift the curve to the left, indicating that lower levels of inflation are needed to maintain the same level of employment. Thus, Option B is the correct choice.

The Canadian Long-Run Phillips Curve ________ When the Expected Inflation