The Phillips curve .

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Chapter 17, Problem 17.2.4PA

To determine

The Phillips curve.

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According to the short-run Phillips curve, if the central bank increases the money supply, then inflation and unemployment will both fall. inflation and unemployment will both rise. inflation will fall and unemployment will rise. inflation will rise and unemployment will fall.

The following graph plots a short-run Phillips curve for a hypothetical economy. Show the short-run effect of a contractionary monetary policy by dragging the point along the short-run Phillips curve (SRPC) or shifting the curve to the appropriate position. Now, show the long-run effect of a contractionary monetary policy by dragging either the short-run Phillips curve (SRPC), the long-run Phillips curve (LRPC), or both. As anticipated, inflation (rises/falls) and the short-run Phillips curve shifts (downward/upward) , highlighting the cost of fighting inflation, which is (higher unemployment in the long run/temporary unemployment/lower unemployment) . Which of the following examples represents a cost of inflation? Check all that apply. -An unintended redistribution of wealth from borrowers to lenders -A general decrease in purchasing power -Increased variability of relative prices -A coffee shop’s costs to reprint its menu to reflect fluctuating prices

According to the short-run Phillips curve, if the central bank increases the money supply, then Answer inflation and unemployment will both fall. inflation and unemployment will both rise. inflation will fall and unemployment will rise. inflation will rise and unemployment will fall.