If the unemployment rate in the economy is steady at 4 percent per year, how does the short-run Phillips curve predict that the inflation rate will be changing, if at all?    What will happen if the unemployment rate now rises to 7 percent per year? Assume there are no changes to inflation expectations. Provide an appropriate graph to support your discussion. Your discussion should be at least 500 words in length, but not more than 700 words. Use APA citations and references if you use ideas from the readings or other sources.

The Phillips Curve is an economic concept developed by A. W. Phillips stating that inflation and unemployment have a stable and inverse relationship. According to the short-run Phillips Curve, when the unemployment rate is low, the rate of inflation is high and vice versa.

In the given scenario, if the unemployment rate in the economy is steady at 4 percent per year, the short-run Phillips Curve predicts that the inflation rate will also be steady. This is because, in the short run, the Phillips Curve suggests that policies that lower unemployment also raise inflation. Therefore, if the unemployment rate is steady, the inflation rate should also be steady.

However, if the unemployment rate rises to 7 percent per year, the short-run Phillips Curve predicts that the inflation rate will decrease. This is because the Phillips Curve suggests an inverse relationship between unemployment and inflation. Therefore, an increase in the unemployment rate would lead to a decrease in the inflation rate.

It's important to note that these predictions are based on the assumption that there are no changes to inflation expectations. In reality, inflation expectations can and do change, which can shift the Phillips Curve and alter these predictions.

To illustrate this, consider the following graph:

[Insert Graph Here]

On the vertical axis, we have the inflation rate, and on the horizontal axis, we have the unemployment rate. The downward sloping line represents the short-run Phillips Curve. When the unemployment rate is at 4 percent, we can see that the inflation rate is at a certain level. However, when the unemployment rate increases to 7 percent, we move along the Phillips Curve to a point where the inflation rate is lower.

In conclusion, the short-run Phillips Curve predicts that a steady unemployment rate will lead to a steady inflation rate, and an increase in the unemployment rate will lead to a decrease in the inflation rate, assuming no changes in inflation expectations.

References: Phillips, A. W. (1958). The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957. Economica, 25(100), 283-299.

Note: This is a simplified explanation and the actual relationship between unemployment and inflation can be influenced by a variety of factors not discussed here.