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In the early 1970s, the short-run Phillips curve shifted a. rightward as inflation expectations rose. b....

In the early 1970s, the short-run Phillips curve shifted

a. rightward as inflation expectations rose.

b. rightward as inflation expectations fell.

c. leftward as inflation expectations rose.

d. leftward as inflation expectations fell.

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Answer #1

a)rightward as inflation expectations rose.

In the 1970s the inflation rate started increasing with stagnated economic growth.This was known as Stagflation.Normally economic growth increases with increase in inflation rate.

But 1970s witnessed a shift from this with inflation rate rising with increase in unemployment.This was a result of soaring oil prices causing a supply shock to happen leading to Stagflation.

Philips curve shows relationship between unemployment and inflation.But since both increased in 1970s short run Philips curve shifted upwards and right

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