4. Monetary policy and the Phillips curveBlank 1 an increas.docx

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4. Monetary policy and the Phillips curve Blank 1: an increase, no change, a decrease Blank 2: an increase, no change, a decrease Blank 3: a decrease, no change, an increase Blank 4: no change, an increase, a decrease 4. 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 economy decides to increase the money supply. On the following graph, shit 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
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Unformatted text preview: move was unanticipated. SR Philips Curve INFLATION RATE (Parcent) SR Philips Curve UNEMPLOYMENT RATE (Percent) In the short run, an unexpected increase in the money supply results in in the Inflation rate and in the in the inflation rate and in the In the short run, an unexpected increase in the money supply results in 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 increase in the money supply INF LATION RATE (Percent UNEMPLOYMENT RATE (Percent) in the inflation rate and in the unemployment rate In the long run, the increase in the money supply results in (relative to the economy's initial equilibrium). Grade It Now Save & Continue...
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