Final answer:
True, an increase in the bargaining power of labor unions could shift the Phillips curve upwards in the short term if it leads to higher wages without a corresponding increase in productivity, resulting in higher inflation at existing levels of unemployment. The statement is true.
Step-by-step explanation:
The question asks if a shock to the economy that increases the bargaining power of labor unions would cause the Phillips curve to shift upward.
The Phillips curve represents the inverse relationship between the rate of inflation and the unemployment rate in the short-term. An increase in the bargaining power of labor unions could lead to higher wages without a corresponding increase in productivity.
This could result in higher production costs for firms, which might raise prices to maintain profit margins, leading to higher inflation.
Since the Phillips curve illustrates higher inflation rates at lower unemployment rates, stronger unions could create an environment with both higher inflation and lower unemployment, thus shifting the Phillips curve upward in the short run.
However, if the higher wages are matched by increased productivity, the demand for "unionized" labor could shift to the right, possibly mitigating job losses and adverse effects on the Phillips curve.