In the long run, what are the effects of a decrease in the rate of growth of the money supply?
A) It will increase inflation and shift the short-run Phillips curve right.
B) It will increase inflation and shift the short-run Phillips curve left.
C) It will decrease inflation and shift the short-run Philips curve right.
D) It will decrease inflation and shift the short-run Phillips curve left.

Question

Quizplus · Accepted Answer

A decrease in the rate of growth of the money supply will lead to a decrease in inflation due to a decrease in aggregate demand. This will shift the short-run Phillips curve leftward. This is because as inflation falls, firms will lower their expected inflation and adjust their prices accordingly, leading to a decrease in the short-run Phillips curve.

In the Long Run, What Are the Effects of a Decrease