Just need an answer for the red bracket question please, thanks.Solutions for the bottom question are as follows:from A to B to C then back to B, From A to B and then back to A, from A to B, From A to B to C, from A to CAn increase, a decrease, no change,An increase, decrease, no change. 3. Expectations and the Phillips curveThe following graph shows an economy in long-run equilibrium at point A (grey star symbol). The vertical line is the long-run Phillips curve (LRPC).The downward-sloping curve labeled SRPC, is the short-run Phillips curve passing through point A.SRPCLRPC7SRPC,321235 6478UNEMPLOYMENT RATE (Percent)Which of the following is true along SRPC, ?The actual unemployment rate is 6%.The expected inflation rate is 5%.The actual inflation rate is 5%.The natural rate of unemployment is 3%.Suppose that the Fed suddenly and unexpectedly decreases the money supply in an effort to reduce inflation. As a result of this unanticipated action,actual inflation falls to 3%.On the previous graph, use the black point (plus symbol labeled "B") to illustrate the short-run effects of this policy.INFLATION RATE (Percent) Now, suppose that-after a period of 3% inflation-households and firms begin to expect that the inflation rate will continue to be 3%.On the previous graph, use the purple line (diamond symbol) to draw SRPC2, the short-run Phillips curve that is consistent with these expectations,assuming that it is parallel to SRPC.Finaly, using the orange point (square symbol labeled "C"), indicate on the previous graph the new, long-run equilibrium for this economy.The inflation rate at point Cis higher thanthe inflation rate at point A, and the unemployment rate at point C is the same astheunemployment rate at point A.Was the Fed able to achieve its goal of lowering inflation?O No, because the Fed cannot affect the inflation rate through monetary policy.Yes, but only in the short run; in the long run, inflation returned to its natural rate.Yes, the Fed's policy successfully reduced inflation in both the short run and the long run.Now, suppose that the public fully anticipates the Fed's decision to decrease the money supply. Assume the public also believes that the Fed is firmlycommitted to carrying out this policy. According to rational expectations theory, when the economy is in long-run equilibrium, a fully anticipateddecrease in the money supply will cause the economy to moveon the previous Phillips curve graph. Inthis case, rational expectations theory predicts that the fully anticipated decrease in the money supply will have the immediate effect ofin the inflation rate andin the unemployment rate.

Given that the people have already anticipated that the Fed was going to decrease money supply. This phenomenon is called as rational exectation theory wherein the people based on the trends of the past are able to make rational decisions. According to the theory when the economy is in long run, the decrease in the money supply would lead to a shift or move the economy from A to C on the graph. So this full anticipation would lead to a decrease in the inflation rate and no change in the unemployment rate. On the graph, it is seen that inflation has reduced to 3% from A to C while the unemployment rate is at the LRPC which is the natural level and hence there is no change.