Suppose that a central bank increases the money supply. According to the Phillips curve, what should happen to prices, output, and employment?

Question

Quizplus · Accepted Answer

The Phillips curve suggests that increasing the money supply would lead to higher inflation (prices rise) and lower unemployment (output and employment rise) in the short run, as the economy moves along the curve. This is because more money in the economy boosts spending, leading to increased demand for goods and services, which in turn raises output and employment.

Suppose That a Central Bank Increases the Money Supply