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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
BuyFind

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

Solutions

Chapter
Section
Chapter 22, Problem 2CQQ
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

Expert Solution
To determine
Shift in the Philips curve.

Explanation of Solution

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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