When expectations of inflation are revised upward, the short-run Phillips curve:
A)shifts rightward.
B)becomes steeper.
C)shifts leftward.
D)becomes flatter.

Question

When expectations of inflation are revised upward, the short-run Phillips curve:
A)​shifts rightward.
B)​becomes steeper.
C)​shifts leftward.
D)​becomes flatter.

Quizplus · Accepted Answer

When expectations of inflation are revised upward, people expect prices to rise more quickly. As a result, workers will be compensated with higher wages, which leads to firms increasing their prices even more. This creates an increase in inflation in the short-run, shifting the Phillips curve rightward.

When Expectations of Inflation Are Revised Upward, the Short-Run Phillips