In the long run, what are the effects of a decrease in the rate of growth of the money supply on the Phillips curves?
A) It shifts both the long-run and the short-run Phillips curves right.
B) It leaves the long-run Phillips curve unchanged and the short-run Phillips curve right.
C) It shifts the long-run Phillips curve right and the short-run Phillips curve left.
D) It leaves the long-run Phillips curve unchanged and shifts the short-run Phillips curve left.

Question

Quizplus · Accepted Answer

In the long run, the long-run Phillips curve is vertical and represents the natural rate of unemployment, which is unaffected by changes in the money supply. A decrease in the growth rate of the money supply reduces inflation expectations, shifting the short-run Phillips curve to the left.

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