Chapter 34, Problem 3MCQ

To determine

The correct option for increase in expected inflation.

Answer to Problem 3MCQ

From the available options, the correct option is the short-run Phillips curve upward.

Explanation of Solution

In the short run, inflation and unemployment have a negative or inverse connection, or there is a trade-off, according to the Philips curve. Any change in the inflation rate causes a shift along the Phillips curve; however, if the inflation rate is forecast to change, the Phillips curve shifts upward in the short run because employees will want more compensation as a result of the higher expected inflation rate.

Additionally, because there is no trade-off or concession between unemployment and inflation rate over the long term, the Philips curve is vertical.

It means the correct option is b (the short-run Phillips curve upward) and all other options would be incorrect.

Economics Concept Introduction

Introduction: Inflation means there is increase in price of goods and services in the economy which affects the consumption level of the people in country. When there is temporary reduction in price inflation then this is a disinflation in economy. And, the Philips curve represents the inflation and unemployment relationship at different rates in economy.