Monetary policy and the Phillips curve The following graph shows the current short-run Phillips curve for a hypothetical economy; the point on the graph shows the initial unemployment rate and inflation rate. Assume that the economy is currently in long-run equilibrium. Suppose the central bank of the hypothetical econom
Monetary policy and the Phillips curve The following graph shows the current short-run Phillips curve for a hypothetical economy; the point on the graph shows the initial unemployment rate and inflation rate. Assume that the economy is currently in long-run equilibrium. Suppose the central bank of the hypothetical econom
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
1.
The following graph shows the current short-run Phillips curve for a hypothetical economy; the point on the graph shows the initial
Suppose the central bank of the hypothetical economy decides to decrease the money supply.
![INFLATION RATE (Percent)
6
5
0
0
1
I
SR Phillips Curve
3
4
2
UNEMPLOYMENT RATE (Percent)
5
6
In the short run, an unexpected decrease in the money supply results in
unemployment rate.
SR Phillips Curve
in the inflation rate and
in the](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0c10acdd-157c-4c3f-b4f3-a73e5ddf5348%2Fea3e5d7b-750e-4cfd-9778-33d4284fa700%2F7rs27zh_processed.png&w=3840&q=75)
Transcribed Image Text:INFLATION RATE (Percent)
6
5
0
0
1
I
SR Phillips Curve
3
4
2
UNEMPLOYMENT RATE (Percent)
5
6
In the short run, an unexpected decrease in the money supply results in
unemployment rate.
SR Phillips Curve
in the inflation rate and
in the
![INFLATION RATE (Percent)
6
0
0
1
2
UNEMPLOYMENT RATE (Percent)
3
4
5
In the long run, the decrease in the money supply results in
(relative to the economy's initial equilibrium).
6
(?)
in the inflation rate and
▼in the unemployment rate](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0c10acdd-157c-4c3f-b4f3-a73e5ddf5348%2Fea3e5d7b-750e-4cfd-9778-33d4284fa700%2Fwvsy0y_processed.png&w=3840&q=75)
Transcribed Image Text:INFLATION RATE (Percent)
6
0
0
1
2
UNEMPLOYMENT RATE (Percent)
3
4
5
In the long run, the decrease in the money supply results in
(relative to the economy's initial equilibrium).
6
(?)
in the inflation rate and
▼in the unemployment rate
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