Question

Suppose that people who previously had held jobs become structurally unemployed due to establishment of new government regulations during a period in which the inflation rate remains unchanged. 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 rises, the quick philips curve will shift more particular, the quick Philips curve will shift to the right.

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 Short run phillips curve:

When both the rate of inflation and the level of unemployment fluctuate at the same time, motion along the quick Philips curve happens. But at the other extreme, when either the unemployment rate or the annual inflation remain fixed while the other changes, the quick Philips curve shifts.

Step: 3 Movement along short-run phillips curve:

In this scenario, it has been said that while the rate of inflation remains unchanged, the unemployment rate is increasing due to structural unemployment.Because the inflation rate remains steady while the unemployment rate rises, the quick Philips curve will shift.More particular, the quick Philips curve will shift to the right.