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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

If the Federal Reserve increases the rate of money growth and maintains it at the new higher rate, eventually expected inflation will _____ and the short-run Phillips curve will shift _____.

a. decrease, downward

b. decrease, upward

c. increase, downward

d. increase, upward

To determine

Shift in the Philips curve.

Explanation

Option (d):

If the Federal Reserve increases the rate of money growth and maintains it at the new higher rate, the expected inflation will increase and the short-run Phillips curve will shift upward. The increase in money growth rate will increase the inflation rate, that is, the Phillips curve will shift upward. Thus, option “d” is correct.

Option (a):

If the Federal Reserve increases the rate of money growth, it will lead to an increase in the inflation rate...

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