The three figures below show the phases of a disinflation.In part (i),the economy is experiencing a sustained inflation at E₁. FIGURE 29-4 Refer to Figure 29-4,part (iii).Consider the recovery phase of the disinflation process.The disadvantage of implementing an expansionary monetary policy to shift equilibrium from E₃ to E₄ is

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The disadvantage of implementing an expansionary monetary policy to shift equilibrium from E₃ to E₄ is the danger of reviving expected inflation, and having to repeat the phases of the disinflation. This is because once expected inflation has been eliminated, implementing expansionary policies may cause firms and consumers to expect inflation to rise again, leading to a new cycle of inflation and disinflation.

The Three Figures Below Show the Phases of a Disinflation