Figure 35-9.The left-hand graph shows a short-run aggregate-supply (SRAS)curve and two aggregate-demand (AD)curves.On the right-hand diagram,"Inf Rate" means "Inflation Rate." -Refer to Figure 35-9.Subsequent to the shift of the Phillips curve from PC₁ to PC₂,the curve will soon shift back to PC₁ if people perceive the A)increase in the inflation rate as a temporary aberration. B)economic boom as a temporary aberration. C)increase in the inflation rate as a sign of a new era of higher inflation. D)economic boom as a sign of a new era of higher economic growth.

Question

Quizplus · Accepted Answer

If people perceive the increase in the inflation rate as a temporary aberration, they are likely to adjust their behavior accordingly, such as reducing their demand for goods and services or demanding higher wages, which would decrease aggregate demand and shift the Phillips curve back to PC₁. If they perceive the inflation as a sign of a new era of higher inflation, they may make different economic decisions that could reinforce the inflationary pressures and shift the Phillips curve further to the right. Therefore, the most likely outcome is A.