Suppose the central bank announces it will pursue expansionary policy to change the inflation rate to 14%. If the central bank pushes the inflation rate to 14%, but the public still expects 10% inflation, the unemployment rate will be 12% in the short run.

The graph below illustrates the shortrun and longrun Phillips curve for a hypothetical economy. Initially, the actual and expected ination rate is 10%, and the unemployment rate is 8% (the natural rate of unemployment). Phillips Curve Inflation IE 15 14 12 12 H 1D Unemployment