US data fit the pattern of a short run Phillips Curve better in the 1960s than in the 1970s primarily because
A) government used more demand management in the 1970s than in the 1960s
B) wages were more flexible in the 1960s than in the 1970s
C) oil price shocks in the 1970s shifted the Phillips Curve
D) the concepts of inflationary expectations and the natural rate of unemployment had not been introduced in the 1960s
E) the end of the Vietnam War in the 1970s fundamentally altered the natural rate of unemployment

Question

Quizplus · Accepted Answer

The oil price shocks in the 1970s, caused by the OPEC embargo and subsequent increase in the price of oil, shifted the Phillips Curve to the right. This means that for any given level of unemployment, there was a higher rate of inflation in the 1970s than in the 1960s. This shift made the relationship between unemployment and inflation weaker and less predictable, which is why the data fit the short run Phillips Curve better in the 1960s than in the 1970s.

US Data Fit the Pattern of a Short Run Phillips