Figure 13.6 Alt text for Figure 13.6: In figure 13.6, a graph shows the short-run and long-run Phillips curves.
Long description for Figure 13.6: The x-axis is labelled, unemployment rate percent.The y-axis is labelled, inflation rate percent per year.A straight line labelled, short-run Philips Curve, begins at the top left corner and slopes down to the end of the x-axis.A straight line labelled, long-run Philips Curve is perpendicular to the x-axis, and begins from the x-axis value 5.Long-run Philips Curve intersects the short-run Philips Curve at point A (5, 2), near the bottom of the line and passes through point C (5, 4.8%)near the top end.Point B (3%, 4.8%)is plotted near the left end of the short-run Philips Curve, with the same y-axis value as point C.The points are connected to their respective coordinates on the x and y-axes with dotted lines.
-Refer to Figure 13.6.If firms and workers have adaptive expectations, an expansionary monetary policy will cause the short-run equilibrium to move from

Question

Figure 13.6  Alt text for Figure 13.6: In figure 13.6, a graph shows the short-run and long-run Phillips curves.
Long description for Figure 13.6: The x-axis is labelled, unemployment rate percent.The y-axis is labelled, inflation rate percent per year.A straight line labelled, short-run Philips Curve, begins at the top left corner and slopes down to the end of the x-axis.A straight line labelled, long-run Philips Curve is perpendicular to the x-axis, and begins from the x-axis value 5.Long-run Philips Curve intersects the short-run Philips Curve at point A (5, 2), near the bottom of the line and passes through point C (5, 4.8%)near the top end.Point B (3%, 4.8%)is plotted near the left end of the short-run Philips Curve, with the same y-axis value as point C.The points are connected to their respective coordinates on the x and y-axes with dotted lines.
-Refer to Figure 13.6.If firms and workers have adaptive expectations, an expansionary monetary policy will cause the short-run equilibrium to move from

Quizplus · Accepted Answer

With adaptive expectations, when the central bank pursues an expansionary monetary policy, firms and workers adjust their expectations based on past inflation rates. Initially, they may not fully anticipate the inflationary impact of the policy. As a result, real wages may temporarily fall, leading firms to increase hiring and production. This moves the economy from a lower output level to a higher one in the short run, corresponding to moving from point A (initial equilibrium) to point B (new short-run equilibrium with higher output and employment).

Figure 136 Alt Text for Figure 13