Exhibit 17-4 Short-Run and Long-Run Phillips Curves

question 6

Multiple Choice

Exhibit 17-4 Short-run and long-run Phillips curves

Suppose the economy in Exhibit 17-4 is at point E₁, and the Fed increases the money supply. If people have rational expectations, then the economy will move:

• A) to point A in the short run and point B in the long run.
• B) directly to point B.
• C) to point C in the short run and point D in the long run.
• D) directly to point D.

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