Chapter 34, Problem 7MCQ

To determine

The correct option that causes the short-run Phillips curve to shift to the right.

Answer to Problem 7MCQ

From the available options, the correct option is an increase in inflation expectations.

Explanation of Solution

The Phillips curve would move to the right in response to a negative supply shock, not to a positive supply shock. A positive supply shock or an increase in overall supply will cause the short-run Phillips curve to shift to the left or result in lower prices and decreased unemployment. And, the short-run Phillips curve will move to the right in response to rising oil prices and investment costs but not in case of decreasing oil prices.

But Workers' expectations of future inflation change as a result of the rising inflation, which causes the short-run Phillips curve to move to the right.

Therefore, the correct option is c (an increase in inflation expectations) and all other options are incorrect.

Economics Concept Introduction

Introduction: Inflation means there is an increase in the price of goods and services in the economy which affects the consumption level of the people in the country. And unemployment is the rate of unemployed people who do not have any work or source to employ in the economy. The Philips curve represents that there is a negative or inverse relationship or trade-off between these two factors (inflation and unemployment) in the short run.