A central bank sets out to reduce unemployment by changing the money supply growth rate.The long-run Phillips curve shows that in comparison to their original rates,this policy will eventually lead to
A)an increase in both the inflation rate and the unemployment rate.
B)an increase in the inflation rate and a reduction in the unemployment rate.
C)no change in either the inflation rate or the unemployment rate.
D)an increase in the inflation rate and no change in the unemployment rate.

Question

Quizplus · Accepted Answer

In the long run, the Phillips curve is vertical, indicating that unemployment is at its natural rate regardless of inflation. Increasing the money supply may reduce unemployment temporarily, but in the long run, it only leads to higher inflation without affecting the unemployment rate.

A Central Bank Sets Out to Reduce Unemployment by Changing