Downward Shift of the Phillips Curve from Updated Inflation Expectations

A country's central bank observes that the annual inflation rate is 7%, which is significantly above its target. To initiate a process of disinflation, policymakers decide to implement contractionary policies that will weaken aggregate demand. Based on the short-run relationship between inflation and unemployment, what is the immediate, direct consequence of this policy action?

Analyzing a Disinflationary Policy

The Initial Trade-Off in Reducing Inflation

A government's initial policy action to combat high inflation, which results in a higher unemployment rate, is graphically represented as an immediate downward shift of the entire short-run inflation-unemployment trade-off curve.

A central bank decides to combat an inflation rate that is persistently above its target. Arrange the following events in the logical sequence that describes the initial phase of the disinflationary process, as depicted by a movement along a stable inflation-unemployment trade-off relationship.