If the Fed announced a policy to reduce inflation and people found it credible,the short-run Phillips curve would shift
A)right and the sacrifice ratio would fall.
B)right and the sacrifice ratio would rise.
C)left and the sacrifice ratio would fall.
D)left and the sacrifice ratio would rise.

Question

Quizplus · Accepted Answer

If people believed the Fed's policy to reduce inflation, they would expect lower inflation in the future, which would shift the short-run Phillips curve left. This means that for any given unemployment rate, there would be lower inflation. The sacrifice ratio, which is the cost of reducing inflation, would also fall because the shift in the Phillips curve would mean that the Fed could achieve lower inflation with less output loss.

If the Fed Announced a Policy to Reduce Inflation and People