-In the above figure, suppose that the economy is at point A. An unexpected increase in the inflation rate to 6 percent will result in a movement to point

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Quizplus · Accepted Answer

An unexpected increase in the inflation rate to 6 percent would typically lead to higher nominal interest rates as lenders demand more compensation for the decreased purchasing power of future payments. This scenario is represented by a movement up along the short-run Phillips curve to a point like B, where both inflation and unemployment rates are higher.

-In the Above Figure, Suppose That the Economy Is at Point