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In the short run, an unexpected decrease in the money supply results in in the inflation rate and in the 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 decrease in the money supply. 6 2 4 8 10 12 UNEMPLOYMENT RATE (Percent) INFLATION RATE (Percent)

In the short run, an unexpected decrease in the money supply results in in the inflation rate and in the 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 decrease in the money supply. 6 2 4 8 10 12 UNEMPLOYMENT RATE (Percent) INFLATION RATE (Percent)

Brief Principles of Macroeconomics (MindTap Course List)
Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter17: The Short-run Trade-off Between Inflation And Unemployment
Section: Chapter Questions
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In the short run, an unexpected decrease in the money supply results in in the inflation rate and in the 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 decrease in the money supply. 5 1 2 4 8 10 12 UNEMPLOYMENT RATE (Percent) In the long run, the decrease in the money supply results in in the inflation rate and in the unemployment rate (relative to the economy's initial equilibrium). 4. 31 2. INFLATION RATE (Percent)
Transcribed Image Text:In the short run, an unexpected decrease in the money supply results in in the inflation rate and in the 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 decrease in the money supply. 5 1 2 4 8 10 12 UNEMPLOYMENT RATE (Percent) In the long run, the decrease in the money supply results in in the inflation rate and in the unemployment rate (relative to the economy's initial equilibrium). 4. 31 2. INFLATION RATE (Percent)
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 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. 6 SR Phillips Curve SR Phillips Curve 1 4. 6. 8 10 12 UNEMPLOYMENT RATE (Percent) 4. 2) INFLATION RATE (Percent)
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 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. 6 SR Phillips Curve SR Phillips Curve 1 4. 6. 8 10 12 UNEMPLOYMENT RATE (Percent) 4. 2) INFLATION RATE (Percent)
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