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Figure: Expected Inflation and the Short-Run Phillips Curve
SRPC 0 is the Phillips curve with an expected inflation rate of zero; SRPC 2 is the Phillips curve with an expected inflation rate of 2%.
-(Figure: Expected Inflation and the Short-Run Phillips Curve) Look at the figure Expected Inflation and the Short-Run Phillips Curve. Suppose that this economy has an unemployment rate of 6%, no inflation, and no expectation of inflation. If the central bank decreases the money supply such that aggregate demand shifts to the left and unemployment rises to 8%, then inflation will:

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Use the following to answer questions :
Figure: Expected Inflation and the Short-Run Phillips Curve
SRPC 0 is the Phillips curve with an expected inflation rate of zero; SRPC 2 is the Phillips curve with an expected inflation rate of 2%. 
-(Figure: Expected Inflation and the Short-Run Phillips Curve) Look at the figure Expected Inflation and the Short-Run Phillips Curve. Suppose that this economy has an unemployment rate of 6%, no inflation, and no expectation of inflation. If the central bank decreases the money supply such that aggregate demand shifts to the left and unemployment rises to 8%, then inflation will:

Quizplus · Accepted Answer

When the central bank decreases the money supply, aggregate demand shifts left, leading to higher unemployment and lower inflation. With an initial unemployment rate of 6% and no inflation, an increase in unemployment to 8% suggests a movement along the Phillips Curve, resulting in deflation or negative inflation, hence -2%.

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