The economy is absorbing excess capacity more rapidly than we projected in April, and it now appears that the output gap will close around the end of this year. . . . Meanwhile, inflation has continued to fluctuate in the bottom half of our target range. . . . All things considered, Governing Council judges that in the absence of temporary factors, inflation would be running at around 1.8 percent. . . . [and] as the [output] gap closes in the months ahead, we expect inflation to head toward 2 percent.

a. Is Stephen Poloz predicting that the Canadian economy is moving along a short-run Phillips curve or that the short-run Phillips curve is shifting? Or both? In which direction is the economy moving?

b. Sketch an example of the Phillips curve and show on the graph how the Canadian economy is changing.