A negative supply shock, such as a sudden rise in oil

Solution

A negative supply shock (like a sudden spike in oil prices) causes Stagflation i.e. a situation where both inflation and unemployment increase simultaneously. Since the Phillips Curve represents the trade-off between inflation and unemployment, a shift to the right (or upward) means that for any given level of unemployment, there is now a higher rate of inflation. This shift indicates a worsening of the trade-off, as the economy now faces higher prices (due to increased production costs) and lower output (leading to higher unemployment).