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 decrease the money supply. On the following graph, shift the short-run (SR) Phillips 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. INFLATION RATE (Percent) 10 10 N 0 0 I I 3 O SR Phillips Curve 12 UNEMPLOYMENT RATE (Percent) 15 18 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

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question
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 decrease the money supply.
On the following graph, shift the short-run (SR) Phillips 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.
INFLATION RATE (Percent)
8
5
3
N
1
0
0
3
9
SR Phillips Curve
8
12
UNEMPLOYMENT RATE (Percent)
15
18
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
Transcribed Image Text: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 decrease the money supply. On the following graph, shift the short-run (SR) Phillips 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. INFLATION RATE (Percent) 8 5 3 N 1 0 0 3 9 SR Phillips Curve 8 12 UNEMPLOYMENT RATE (Percent) 15 18 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
On the following graph, shift the long-run (LR) Phillips 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.
INFLATION RATE (Percent)
CO
6
5
1
0
0
3
LR Phillips Curve
9
8
12
UNEMPLOYMENT RATE (Percent)
15
In the long run, the decrease in the money supply results in
(relative to the economy's initial equilibrium).
18
LR Phillips Curve
?
in the inflation rate and
in the unemployment rate
Transcribed Image Text:On the following graph, shift the long-run (LR) Phillips 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. INFLATION RATE (Percent) CO 6 5 1 0 0 3 LR Phillips Curve 9 8 12 UNEMPLOYMENT RATE (Percent) 15 In the long run, the decrease in the money supply results in (relative to the economy's initial equilibrium). 18 LR Phillips Curve ? in the inflation rate and in the unemployment rate
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps with 2 images

Blurred answer
Knowledge Booster
Federal Reserve System
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education