Question

Suppose that people who previously had held jobs become cyclically unemployed at the same time the inflation rate declines. Would the result be a movement along or a shift of the short-run Phillips curve? Explain your reasoning.

Short answer

As a result, the unemployment rate or the inflation rate stays fixed while the other changes, the short-run Philips curve shifts. and the quick Philips curve will go downward when the unemployment rate rises and the inflation rate falls.

Step-by-step solution

Step; 1 Introduction:

The Philips curve illustrates the inverse link between inflation and unemployment.

In other words, the Philips curve depicts the trade-off between inflation and unemployment, i.e., in order to reduce unemployment, a higher inflation rate must be paid, and vice versa.

Step: 2 Phillips curve:

When both the rate of inflation and the rate of unemployment fluctuate at the same time, change is along short-run Philips curve happens.

But from the other hand, if either the unemployment rate or the inflation rate stays fixed while the other changes, the short-run Philips curve shifts.

Step; 3  Movement of phillips curve:

There is change along the quick Philips curve in the present scenario due to repeated changes in jobless rate (unemployed rate has increased as recession is increasing) and rate of inflation (inflation rate is dropping).More specifically, the quick Philips curve will go downward when the unemployment rate rises and the inflation rate falls.