If commodity prices rise and inflation expectations rise, the SRAS will shift to which direction and the short-run Phillips curve will shift in which direction?

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Prepare for the Rutgers Macroeconomics Test with multiple choice questions, hints, and explanations. Master key concepts and excel in your exam!

Multiple Choice

If commodity prices rise and inflation expectations rise, the SRAS will shift to which direction and the short-run Phillips curve will shift in which direction?

Explanation:
Rising commodity prices raise production costs, so in the short run firms produce less at every price level. That makes the short-run aggregate supply curve shift left. If inflation expectations rise, people and firms expect higher inflation, so wages and prices adjust accordingly and the short-run Phillips curve moves upward—that is, for any given unemployment rate, inflation is higher. Put together, the SRAS shifts left and the short-run Phillips curve shifts upward.

Rising commodity prices raise production costs, so in the short run firms produce less at every price level. That makes the short-run aggregate supply curve shift left. If inflation expectations rise, people and firms expect higher inflation, so wages and prices adjust accordingly and the short-run Phillips curve moves upward—that is, for any given unemployment rate, inflation is higher. Put together, the SRAS shifts left and the short-run Phillips curve shifts upward.

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