In the long run,a decrease in the money supply growth rate

Question

Quizplus · Accepted Answer

A decrease in the money supply growth rate results in a leftward shift of the AD curve, leading to a decrease in output and employment in the short run. This decrease in output and employment causes a decrease in wage and price inflation as firms cut prices and workers accept lower wages. As a result, the short-run Phillips curve shifts leftward, but only to a certain extent. In the long run, prices and wages adjust fully, and the economy returns to its natural rate of unemployment. Therefore, the correct option is B, which states that the decrease in the money supply growth rate shifts the short-run Phillips curve left so unemployment returns to its natural rate.

In the Long Run,a Decrease in the Money Supply Growth