Figure 13.11 Alt text for Figure 13.11: In figure 13.11, a graph shows the short-run and long-run Phillips curves.
Long description for Figure 13.11: The x-axis is labelled, unemployment rate percent, and the y-axis is labelled, inflation rate percent per year.A straight line labelled, short-run Philips Curve 1, begins at the top left corner and slopes down to the bottom center.A straight line labelled, short-run Philips Curve 2, follows the same slope as Curve 1, but is plotted to the right.A straight line labelled, long-run Philips Curve, is perpendicular to the x-axis, and intersects the short-run Philips Curve 1 at point A near the bottom end of both lines.Point B is plotted half way along the short-run Philips Curve 1.Long-run Philips Curve intersects short-run Philips Curve 2 at point C near the top half of the curves.Point D is plotted more than half way along the short-run Philips Curve 2.Points E and F are plotted close to the left and right ends, respectively, of the short-run Philips Curve 2.
-Refer to Figure 13.11.A follower of the new classical macroeconomics would argue that ________, like that pursued by the Bank of Canada in 1979, would result in a movement from C to A.

Question

Figure 13.11  Alt text for Figure 13.11: In figure 13.11, a graph shows the short-run and long-run Phillips curves.
Long description for Figure 13.11: The x-axis is labelled, unemployment rate percent, and the y-axis is labelled, inflation rate percent per year.A straight line labelled, short-run Philips Curve 1, begins at the top left corner and slopes down to the bottom center.A straight line labelled, short-run Philips Curve 2, follows the same slope as Curve 1, but is plotted to the right.A straight line labelled, long-run Philips Curve, is perpendicular to the x-axis, and intersects the short-run Philips Curve 1 at point A near the bottom end of both lines.Point B is plotted half way along the short-run Philips Curve 1.Long-run Philips Curve intersects short-run Philips Curve 2 at point C near the top half of the curves.Point D is plotted more than half way along the short-run Philips Curve 2.Points E and F are plotted close to the left and right ends, respectively, of the short-run Philips Curve 2.
-Refer to Figure 13.11.A follower of the new classical macroeconomics would argue that ________, like that pursued by the Bank of Canada in 1979, would result in a movement from C to A.

Quizplus · Accepted Answer

A follower of the new classical macroeconomics believes in the long-run neutrality of money and that any attempt to manipulate aggregate demand through monetary or fiscal policy will only have short-term effects on the economy. Therefore, they would argue that contractionary monetary policy, like that pursued by the Bank of Canada in 1979, would result in a movement from point C to point A on the Phillips curve, indicating a decrease in inflation and an increase in unemployment in the short-term, but with no permanent effect on the unemployment rate in the long-run.

Figure 1311 Alt Text for Figure 13