Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 35 - Part XII - The Short-Run Trade-Off between Inflation and Unemployment - Questions for Review: 4

Answer

When droughts destroy farm crops the price of food is driven up and the short run aggregate supply shifts to the left the short run phillips curve shifts to the right as costs of production ( input costs and other costs) increase. The higher short run phillips curve shows that inflation will be higher.

Work Step by Step

To understand this question figure out what occurs with the aggregate supply curve then understand that the phillips curve responds inversely ( shift-wise) to the aggregate supply curve.
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