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Suppose the government passes legislation that decreases the natural rate of unemployment. How does this change...

Suppose the government passes legislation that decreases the natural rate of unemployment. How does this change the long- and short-run Phillips curves?

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Answer : The Philips curve shows the relationship between inflation and unemployment. The slope of long-run Phillips curve is vertical. Long-run Phillips curve shows the natural unemployment rate. Now if the natural unemployment rate decrease due to government passed legislation then the long-run Philips curve shift to leftward. As at existing inflation rate the natural unemployment rate decreases here, hence the short-run Phillips curve shifts to leftward.

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