Conducting expansionary monetary policy when the economy is at its long-run equilibrium causes the Phillips curve to:
A) shift straight up.
B) shift straight down.
C) become less steep.
D) become steeper.

Question

Quizplus · Accepted Answer

When the economy is at its long-run equilibrium, expansionary monetary policy will increase aggregate demand and temporarily lower unemployment, causing firms to increase production and hire more workers. As more firms compete for a limited number of workers, wages and prices will rise, leading to cost-push inflation. This results in a movement up the Phillips curve, represented by a shift straight up.

Conducting Expansionary Monetary Policy When the Economy Is at Its