Asked by Karina Garcia on Jun 11, 2024
Verified
If people correctly anticipate that inflation will fall by 1%, then
A) the short-run Phillips curve shifts right and unemployment is unchanged.
B) the short-run Phillips curve shifts right and unemployment rises.
C) the short-run Phillips curve shifts left and unemployment is unchanged.
D) the short-run Phillips curve would shift left and unemployment falls.
Short-run Phillips Curve
A graphical representation showing an inverse relationship between the rate of inflation and the rate of unemployment in an economy over the short term.
Inflation
The rate at which the wholesale price levels for goods and services ascend, diminishing economic purchasing strength.
Unemployment
The situation when individuals who are capable of working and willing to work are unable to find employment.
- Recognize the role of expectations in influencing the unemployment and inflation outcomes.
Verified Answer
NM
ngcebo masilelaJun 11, 2024
Final Answer :
C
Explanation :
The short-run Phillips curve represents the inverse relationship between inflation and unemployment. If people correctly anticipate a fall in inflation, it implies that inflationary expectations adjust downward. This adjustment can lead to a leftward shift in the short-run Phillips curve because lower inflation expectations can reduce wage and price pressures without changing the actual rate of unemployment, hence unemployment remains unchanged.
Learning Objectives
- Recognize the role of expectations in influencing the unemployment and inflation outcomes.