Figure 17-2
-Refer to Figure 17-2.Suppose the Fed used expansionary policy to push short-run equilibrium to point B.If the short-run equilibrium remained at point B long enough

Question

Figure 17-2 
-Refer to Figure 17-2.Suppose the Fed used expansionary policy to push short-run equilibrium to point B.If the short-run equilibrium remained at point B long enough

Quizplus · Accepted Answer

If the short-run equilibrium remains at point B long enough, the expansionary policy will lead to an increase in aggregate demand, which will increase output and lower unemployment in the short run. However, this will also lead to an increase in the price level, moving the economy up along the short-run Phillips curve. As a result, the short-run Phillips curve will shift up, indicating that there is a higher rate of inflation for any given level of unemployment. In the long run, the economy will eventually move back to its natural rate of unemployment at point A, but this will only happen if there are no further policy interventions.

Figure 17-2 -Refer to Figure 17-2.Suppose the Fed Used Expansionary Policy to Expansionary