Figure 13.1 Alt text for Figure 13.1: In figure 13.1, a short-run Phillips curve.
Long description for Figure 13.1: The x-axis is labelled, unemployment rate percent, and the y-axis is labelled, inflation rate percent per year.A straight line labelled, Philips curve, begins at the top left corner and slopes down to the end of the x-axis.Point A is plotted half way along the line.Point B is plotted to the right of point A.Point C is plotted is to the left of point A.Point D is plotted above this line, in the left center of the quadrant.Point E is plotted below this line, directly beneath point A.
-Refer to Figure 13.1.Suppose that the economy is currently at point A.If the Bank of Canada engaged in contractionary monetary policy, where would the economy end up in the short run?

Question

Figure 13.1  Alt text for Figure 13.1: In figure 13.1, a short-run Phillips curve.
Long description for Figure 13.1: The x-axis is labelled, unemployment rate percent, and the y-axis is labelled, inflation rate percent per year.A straight line labelled, Philips curve, begins at the top left corner and slopes down to the end of the x-axis.Point A is plotted half way along the line.Point B is plotted to the right of point A.Point C is plotted is to the left of point A.Point D is plotted above this line, in the left center of the quadrant.Point E is plotted below this line, directly beneath point A.
-Refer to Figure 13.1.Suppose that the economy is currently at point A.If the Bank of Canada engaged in contractionary monetary policy, where would the economy end up in the short run?

Quizplus · Accepted Answer

Contractionary monetary policy would lead to higher interest rates, reducing investment and spending, which would shift the aggregate demand curve to the left, moving the economy from point A to point B, indicating a lower price level and lower output in the short run.

Figure 131 Alt Text for Figure 13