Practice question · True or false
A supply shock like an oil embargo shifts the Phillips curve outward, so both inflation and unemployment can rise together.
Hints
- A cost shock raises inflation at every unemployment level.
- That moves the whole relationship rather than sliding along it.
Show the answer
True
Why
The Phillips curve shifts with supply shocks: higher costs mean higher inflation at every level of unemployment. The demand-side trade-off still exists, but it operates on a worse frontier.
Practise Oil Shocks and Stagflation
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