For a very long time the country of Tofu has had an inflation rate of 8 percent. Suddenly its inflation rate drops to 3 percent. The drop in the inflation rate
A)could be due to slower money supply growth.We would expect unemployment to be higher.
B)could be due to slower money supply growth.We would expect unemployment to be lower.
C)could be due to higher money supply growth.We would expect unemployment to be higher.
D)could be due to higher money supply growth.We would expect unemployment to be lower.

Question

Quizplus · Accepted Answer

A decrease in inflation from 8 percent to 3 percent could be due to a slower growth in the money supply. According to the Phillips curve, this could lead to higher unemployment as the economy adjusts to the lower inflation rate.

For a Very Long Time the Country of Tofu Has