Figure 35-1.The left-hand graph shows a short-run aggregate-supply (SRAS)curve and two aggregate-demand (AD)curves.On the right-hand diagram,U represents the unemployment rate.
-Refer to Figure 35-1.The curve that is depicted on the right-hand graph offers policymakers a "menu" of combinations
A)that applies both in the short run and in the long run.
B)that is relevant to choices involving fiscal policy,but not to choices involving monetary policy.
C)of inflation and unemployment.
D)All of the above are correct.

Question

Figure 35-1.The left-hand graph shows a short-run aggregate-supply (SRAS)curve and two aggregate-demand (AD)curves.On the right-hand diagram,U represents the unemployment rate. 
-Refer to Figure 35-1.The curve that is depicted on the right-hand graph offers policymakers a "menu" of combinations
A)that applies both in the short run and in the long run. 
B)that is relevant to choices involving fiscal policy,but not to choices involving monetary policy. 
C)of inflation and unemployment. 
D)All of the above are correct.

Quizplus · Accepted Answer

The curve depicted on the right-hand graph offers policymakers a "menu" of combinations of inflation and unemployment. It is known as the Phillips curve and represents a short-run tradeoff between inflation and unemployment. Policymakers can choose any point along the curve depending on their desired levels of inflation and unemployment. This curve is not relevant to choices involving monetary policy as the central bank can only influence the nominal interest rate and, in turn, impact real GDP and inflation.