unanticipated and anticipated AD

I would like to know what happens to the following problem, when aggregate demand is anticipated in the following problem? ---------------------------- What would be the impact of an unanticipated increase in aggregate demand on an economy’s rate of unemployment, rate of inflation, and the short-run Phillips curve (SRPC)? Unemployment Inflation SRPC A) Decrease Increase Upward movement along curve B) Increase Increase Downward movement along curve C) No effect Decrease Upward shift of curve D) Decrease Decrease Downward shift of curve Your answer: B was incorrect. The correct answer was A) Decrease Increase Upward movement along curve Assume that the expected inflation rate is 8 percent a year and that the natural rate of unemployment is 5 percent for an economy. An unanticipated increase in aggregate demand will cause firms to hire more workers in the short-run. That action should reduce the economy’s unemployment rate below its natural rate. However, as aggregate demand increases the inflation rate will increase. This joint action would result in an upward movement along the short-run Phillips curve.

i would say: unemployment no effect inflation increase SRPC upward shift

Let me take a stab at this. In case it is anticipated, the short run philips curve will move upwards to a new inflation rate. Since we anticipate the inflation the unemployment will stay at the natural level. SO we have no change in unemployment, increase in inflation and upward shift. Can someone confirm this.? Thanks

The difference between anticipated and unanticipated is the change in Short Run Aggregate Supply. With an unanticipated shift in AD, SRAS doesn’t shift at all (if it was anticipated, then SRAS would’ve shifted so that the AD shift would meet SRAS at the long run equilibrium, think of this as producers anticipating price changes and adjusting wages and costs etc.) So here, since SRAS doesn’t shift, an unanticipated increase in AD causes prices and output to rise (i.e. inflation increases, unemployment decreases as there there is more employment to produce this extra output). Inflation increase and unemployment decrease is a move along the Short run phillips curve. I usually remember it as each SRPC is a set of expectations, if expectations don’t change, then it’s a movement along, where as if expectations change, then it’s a shift.

the answer is A… since it is unanticipated, the SRPC will not SHIFT, but will move along the curve… the SRPC only shifts if investors inflation expectations change, which only happens when changes are ANTICIPATED (thus allowing investors to revise their inflation expectations accordingly)… so, for this question, since it is an unanticipated change, investors still have the same inflationary expectations as before (meaning they stay on the same SRPC), and a movement ALONG the curve is called for…