Real Interest Rates and the Phillips Curve
If real interest rates turn negative—because nominal rates fall below inflation—the economy is stimulated by increased borrowing and spending. What movement would be expected on the Phillips curve?
A
No change, since the Phillips curve is only affected by supply-side factors.
B
A movement along the Phillips curve to lower unemployment and higher inflation.
C
A movement along the curve to higher unemployment and lower inflation.
D
A rightward shift of the Phillips curve.
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