Suppose people expect the inflation rate to be 3 percent. The government engages in a one-time expansionary monetary policy in order to lower unemployment. Once people realize what has happened:A. the Phillips curve will shift inward, causing unemployment to return to its natural rate.B. the Phillips curve will shift outward, causing unemployment to return to its natural rate.C. there will be a movement down along the Phillips curve, causing unemployment to return to its original level.D. there will be a movement along the Phillips curve, causing the inflation rate to return to 3 percent.

Named after William Phillips, the Phillips curve is a single-equation economic model that hypothesizes an inverse connection between rates of unemployment and matching rates of pay increases within an economy. In simple words, "The Phillips Curve" is the observation that employment and inflation are related. The strength of the link fluctuates throughout time. However, this does not apply to causality." As a result, while rising inflation may occur at periods when unemployment is low, neither causes the other. Simply put, lower unemployment (i.e., higher levels of employment) in an economy correlates with higher pay growth rates.Option b is correct because when the government introduces the expansionary monetary policy the inflation will increase causing a fall in the unemployment level, which will shift the Phillips curve outwards, causing unemployment to return to its natural rate. Option a is incorrect because there is already some inflation in the economy, thus the expansionary monetary policy will cause an increase in the inflation level. Causing a shift towards the right in the Phillips curve. Option c is incorrect because a one-time expansionary monetary policy will not cause a movement along the Philips curve but will rather cause a shift in the Phillips curve. Option d is incorrect because after the introduction of the expansionary monetary policy measures the inflation rate will rise and will fall back to the previous level of 3%.Hence based on the above reasoning we can conclude that the correct option of the question is option "b", A one-time expansionary monetary policy by the government in order to lower unemployment will shift the Phillips curve outwards and will bring the unemployment rate back to its normal level.

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Suppose people expect the inflation rate to be 3 percent. The government engages in a one-time expansionary monetary policy in order to lower unemployment. Once people realize what has happened O A. the Phillips curve will shift inward, causing unemployment to return to its natural rate. O B. the Phillips curve will shift outward, causing unemployment to return to its natural rate. OC. there will be a movement down along the Phillips curve, causing unemployment to return to its original level. O D. there will be a movement along the Phillips curve, causing the inflation rate to return to 3 percent.

Suppose people expect the inflation rate to be 3 percent. The government engages in a one-time expansionary monetary policy in order to lower unemployment. Once people realize what has happened O A. the Phillips curve will shift inward, causing unemployment to return to its natural rate. O B. the Phillips curve will shift outward, causing unemployment to return to its natural rate. OC. there will be a movement down along the Phillips curve, causing unemployment to return to its original level. O D. there will be a movement along the Phillips curve, causing the inflation rate to return to 3 percent.

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Suppose people expect the inflation rate to be 3 percent. The government engages in a one-time expansionary monetary policy in order to lower unemployment. Once people realize what has happened:

A. the Phillips curve will shift inward, causing unemployment to return to its natural rate.

B. the Phillips curve will shift outward, causing unemployment to return to its natural rate.

C. there will be a movement down along the Phillips curve, causing unemployment to return to its original level.

D. there will be a movement along the Phillips curve, causing the inflation rate to return to 3 percent.

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