In the short run, an unexpected decrease in the money supply results inin the inflation rate andin theunemployment rate.On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the long-run effects of the decrease in the moneysupply.512481012UNEMPLOYMENT RATE (Percent)In the long run, the decrease in the money supply results inin the inflation rate andin the unemployment rate(relative to the economy's initial equilibrium).4.312.INFLATION RATE (Percent) 4. Monetary policy and the Phillips curveThe following graph shows the current short-run Phillips curve for a hypothetical economy; the point on the graph shows the initial unemployment rateand inflation rate. Assume that the economy is currently in long-run equilibrium.Suppose the central bank of the hypothetical economy decides to decrease the money supply.On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy.Hint: You may assume that the central bank's move was unanticipated.6SR Phillips CurveSR Phillips Curve14.6.81012UNEMPLOYMENT RATE (Percent)4.2)INFLATION RATE (Percent)

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In the short run, an unexpected decrease in the money supply results in in the inflation rate and in the unemployment rate. On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the long-run effects of the decrease in the money supply. 6 2 4 8 10 12 UNEMPLOYMENT RATE (Percent) INFLATION RATE (Percent)

In the short run, an unexpected decrease in the money supply results in in the inflation rate and in the unemployment rate. On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the long-run effects of the decrease in the money supply. 6 2 4 8 10 12 UNEMPLOYMENT RATE (Percent) INFLATION RATE (Percent)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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