Monetary Policy in Mokania
Mokania has had inflation of 15% for many years. Mokania establishes a new central bank, the Bank of Mokania, with the hopes of reducing the inflation rate.

-Refer to Monetary Policy in Mokania.The Bank of Mokania publicizes that it intends to reduce the inflation rate to 5%.If Mokanians lower their inflation expectations,which curve shifts to the left?
A)both the short-run and the long-run Phillips curves
B)neither the short-run nor the long-run Phillips curves
C)only the short-run Phillips curve
D)only the long-run Phillips curve

Question

Monetary Policy in Mokania
Mokania has had inflation of 15% for many years. Mokania establishes a new central bank, the Bank of Mokania, with the hopes of reducing the inflation rate.

-Refer to Monetary Policy in Mokania.The Bank of Mokania publicizes that it intends to reduce the inflation rate to 5%.If Mokanians lower their inflation expectations,which curve shifts to the left?
A)both the short-run and the long-run Phillips curves
B)neither the short-run nor the long-run Phillips curves
C)only the short-run Phillips curve
D)only the long-run Phillips curve

Quizplus · Accepted Answer

Lowering inflation expectations typically shifts only the short-run Phillips curve to the left, as it reflects the short-term trade-off between inflation and unemployment.