Figure 35-4
-Refer to Figure 35-4. Suppose the economy starts at 5% unemployment and 3% inflation and expected inflation remains at 3%. Which one of the following points could the economy move to in the short run if the Federal Reserve pursues a more expansionary monetary policy?

Question

Figure 35-4 
-Refer to Figure 35-4. Suppose the economy starts at 5% unemployment and 3% inflation and expected inflation remains at 3%. Which one of the following points could the economy move to in the short run if the Federal Reserve pursues a more expansionary monetary policy?

Quizplus · Accepted Answer

An expansionary monetary policy by the Federal Reserve typically lowers unemployment and increases inflation in the short run, moving the economy to a point like C (3% unemployment and 5% inflation) due to the short-run trade-off between unemployment and inflation represented by the Phillips curve.

Figure 35-4 -Refer to Figure 35-4. Suppose the Economy Starts at 5