In the above figure, what factor might have caused the shift in ...

[armygirl]

In the above figure, what factor might have caused the shift in the short-run Phillips curve from SRPC1 to SRPC2?
 
  What will be an ideal response?

Question 2

In late 2007, the Fed began a series of cuts in the federal funds rate. Because the core inflation rate was about two percent, the most likely reason for these interest rate cuts was
 
  A) to increase the real interest rate.
  B) to avoid a recession.
  C) to encourage households to save more money.
  D) to reduce the natural unemployment rate.
  E) to raise the price of the dollar in the foreign exchange market.

[scikid]

Answer to Question 1

The long-run Phillips curve did not shift. Therefore the factor that shifted the short-run Phillips curve was an increase in the expected inflation rate.

Answer to Question 2

B