If aggregate demand increases, thereby leading to an increase in real GDP and inflation, there is a
A) movement downward along the short-run Phillips curve.
B) movement upward along the short-run Phillips curve.
C) rightward shift in the short-run Phillips curve.
D) leftward shift in the short-run Phillips curve.
E) neither a movement along nor a shift in the short-run Phillips curve.

Question

Quizplus · Accepted Answer

An increase in aggregate demand leads to a movement upward along the short-run Phillips curve, as inflation increases in the short-run due to higher demand for goods and services. A movement downward along the Phillips curve would suggest a decrease in inflation, which is not the case here. A shift in the Phillips curve would occur if there were changes in the underlying structural factors affecting inflation, such as changes in the natural rate of unemployment or productivity, which are not implied by the given scenario.

If Aggregate Demand Increases, Thereby Leading to an Increase in Real