Figure 35-8
Use this graph to answer the questions below.
-Refer to figure 35-8.Suppose the economy starts at 5% unemployment and 3% inflation.If the Federal Reserve pursues an expansionary monetary policy,in the short run the economy moves to
A)3% unemployment and 5% inflation.In the long run the economy moves to 5% unemployment and 5% inflation.
B)3% unemployment and 5% inflation.In the long run the economy moves to 3% unemployment and 5% inflation.
C)7% unemployment and 3% inflation.In the long run the economy moves to 5% unemployment and 5% inflation.
D)7% unemployment and 3% inflation.In the long run the economy moves to 5% unemployment and 3% inflation.

Question

Figure 35-8
Use this graph to answer the questions below. 
-Refer to figure 35-8.Suppose the economy starts at 5% unemployment and 3% inflation.If the Federal Reserve pursues an expansionary monetary policy,in the short run the economy moves to
A)3% unemployment and 5% inflation.In the long run the economy moves to 5% unemployment and 5% inflation. 
B)3% unemployment and 5% inflation.In the long run the economy moves to 3% unemployment and 5% inflation. 
C)7% unemployment and 3% inflation.In the long run the economy moves to 5% unemployment and 5% inflation. 
D)7% unemployment and 3% inflation.In the long run the economy moves to 5% unemployment and 3% inflation.

Quizplus · Accepted Answer

An expansionary monetary policy reduces unemployment in the short run, leading to higher inflation. In the long run, unemployment returns to its natural rate, but inflation remains higher.

Figure 35-8 Use This Graph to Answer the Questions Below