Suppose that the money supply increases. According to the Phillips curve model, what are the effects of this policy change?
A) It decreases unemployment in the short run.
B) It decreases inflation in the long run.
C) It decreases unemployment in the long run.
D) It decreases inflation in the short run.

Question

Quizplus · Accepted Answer

The Phillips curve model suggests that an increase in the money supply can lead to lower unemployment in the short run due to increased spending and economic activity. However, this model also implies that such effects are temporary and can lead to higher inflation in the long run, not decreased inflation or long-term changes in unemployment.

Suppose That the Money Supply Increases