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-(Figure: AD-AS Model and the Short-Run Phillips Curve) Refer to Figure: AD-AS Model and the Short-Run Phillips Curve. If the central bank increases the money supply so that aggregate demand shifts from AD₁ to AD₂, then the inflation rate will be:

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-(Figure: AD-AS Model and the Short-Run Phillips Curve) Refer to Figure: AD-AS Model and the Short-Run Phillips Curve. If the central bank increases the money supply so that aggregate demand shifts from AD₁ to AD₂, then the inflation rate will be:

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An increase in the money supply shifts the aggregate demand curve to the right, leading to a higher price level in the short run. This corresponds to moving along the short-run Phillips curve to a point with higher inflation, which is indicated as 2% in this scenario.

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