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 - Page 790: 5


When the Fed makes a reduction in inflation, the economy moves along the short run phillips curve downward. Over time as expectations adjust to this reduction in inflation rate, the short run phillips curve shifts to the left. This causes the unemployment rate to be temporarily above natural rate.

Work Step by Step

This is the basic concept of the phillips curve. The response of the phillips curve of inflation and unemployment are inversely related.
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