Question

More flexible labor markets will shift a. both the long-run Phillips curve and the long-run aggregate supply curve to the right. b. both the long-run Phillips curve and the long-run aggregate supply curve to the left. c. the long-run Phillips curve to the right and the long-run aggregate supply curve to the left.

Answer 1

Answer: b. both the long-run Phillips curve and the long-run aggregate supply curve to the left.

Explanation: An increase in Aggregate supply would result in the leftward shift in the Phillips Curve. example When the price of oil abroad falls or drops, the short run Phillips Curve tends to shifts to the left. An Increases in aggregate supply like the example cited above will shift the short run Phillips Curve to the left which would help reduce inflation rate which is usually seen at each unemployment rate.