What happens to the Phillips curve when the expected rate of inflation rises?
A)The curve shifts to the right.
B)The curve shifts to the left.
C)The curve becomes horizontal.
D)The Phillips curve is unaffected.

Question

Quizplus · Accepted Answer

When the expected rate of inflation rises, workers and firms begin to expect higher inflation in the future, which causes workers to demand higher wages and firms to increase prices. As a result, the Phillips curve shifts to the right, indicating that there is now a higher rate of inflation associated with each level of unemployment.

What Happens to the Phillips Curve When the Expected Rate