Which of the following would move the economy up and to the left along a short run Phillips Curve?
A)Increases in the discount rate and increases in the interest rate the Fed pays on bank reserves.
B)Increases in taxes by the federal government combined with reductions in government purchases of goods and services.
C)Decreases in the fed funds interest rate target adopted by the Fed.
D)An increase in the expected rate of inflation.

Question

Which of the following would move the economy up and to the left along a short run Phillips Curve?
A)​Increases in the discount rate and increases in the interest rate the Fed pays on bank reserves.
B)​Increases in taxes by the federal government combined with reductions in government purchases of goods and services.
C)​Decreases in the fed funds interest rate target adopted by the Fed.
D)​An increase in the expected rate of inflation.

Quizplus · Accepted Answer

Decreases in the fed funds interest rate target adopted by the Fed would increase the money supply and lower interest rates, causing an increase in output and a decrease in unemployment. This would move the economy up and to the left along the short run Phillips curve. Increases in the discount rate and interest on bank reserves (choice A) would have the opposite effect, causing a decrease in output and an increase in unemployment, shifting the Phillips curve down and to the right. Increases in taxes combined with reductions in government purchases (choice B) would cause a contractionary fiscal policy, decreasing output and potentially increasing unemployment, also shifting the Phillips curve down and to the right. An increase in the expected rate of inflation (choice D) would shift the Phillips curve up and to the right, as firms and workers adjust their behavior to the new expectation of higher prices.

Which of the Following Would Move the Economy Up and to the Left