An increase in both the inflation rate and the unemployment rate can be illustrated by which of the following on the short-run Phillips curve?

• A. A movement downward along the short-run Phillips curve
• B. A rightward shift of the short-run Phillips curve
• C. A leftward shift of the short-run Phillips curve
• D. A movement upward along the short-run Phillips curve

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the short-run Phillips curve (SRPC) relationship, which shows an inverse relationship between inflation and unemployment in the short run. Typically, moving along the curve means one variable rises while the other falls.
2. Step 2: Recognize that a movement along the SRPC implies a trade-off between inflation and unemployment, so if both inflation and unemployment increase simultaneously, this cannot be represented by a movement along the curve.
3. Step 3: Identify that an increase in both inflation and unemployment indicates a shift in the SRPC itself, rather than movement along it, reflecting changes in expectations or supply shocks.
4. Step 4: Determine the direction of the shift: a rightward shift of the SRPC means that for any given unemployment rate, inflation is higher, which corresponds to higher inflation and unemployment simultaneously.
5. Step 5: Conclude that the scenario described (increase in both inflation and unemployment) is illustrated by a rightward shift of the short-run Phillips curve.