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 economy decides to increase 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. SR Phillips Curve SR Phillips Curve 1 2 6 8 10 12 UNEMPLOYMENT RATE (Percent) In the short run, an unexpected increase in the money supply results in in the inflation rate and in the unemployment rate. INFLATION RATE (Percent)

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 economy decides to increase 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. SR Phillips Curve SR Phillips Curve 1 2 6 8 10 12 UNEMPLOYMENT RATE (Percent) In the short run, an unexpected increase in the money supply results in in the inflation rate and in the unemployment rate. 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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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 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 long-run effects of the decrease in the money supply. In the long run, the decrease in the money supply results in(increase, decrease, no change)   in the inflation rate and (increase, decrease, no change) in the unemployment rate (relative to the economy's initial equilibrium).
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