During early 2001, the Fed unexpectedly increased the money supply.The effect of this policy was a
A) movement downward along the short-run Phillips curve.
B) movement upward along the short-run Phillips curve.
C) upward shift of the short-run Phillips curve.
D) downward shift of the short-run Phillips curve.
E) rightward shift of the long-run Phillips curve.

Question

Quizplus · Accepted Answer

An unexpected increase in the money supply would lead to an increase in aggregate demand, causing firms to increase prices and output in the short run. This would result in an upward movement along the short-run Phillips curve, indicated by a higher level of inflation and lower unemployment.

During Early 2001, the Fed Unexpectedly Increased the Money Supply