Figure 16-1
-Refer to Figure 16-1. If the economy starts at c and 1, then in the short run, an increase in the money supply growth rate moves the economy to where?

Question

Figure 16-1 
-Refer to Figure 16-1. If the economy starts at c and 1, then in the short run, an increase in the money supply growth rate moves the economy to where?

Quizplus · Accepted Answer

The short-run Phillips curve is downward sloping, so an increase in the money supply growth rate will cause a temporary increase in output (from c to b) and a decrease in unemployment (from 1 to 2), but also a temporary increase in inflation (from 0 to 3). Eventually, the economy will return to its long-run equilibrium at c and 1.

Figure 16-1 -Refer to Figure 16-1. If the Economy Starts at C