Figure 139 Alt Text for Figure 13

question 195

Multiple Choice

Figure 13.9 Alt text for Figure 13.9: In figure 13.9, a graph shows the short-run and long-run Phillips curves.
Long description for Figure 13.9: The x-axis is labelled, unemployment rate percent.The y-axis is labelled, inflation rate percent per year.A line labelled, short-run Philips Curve, begins at the top left corner and slopes down to the end of the x-axis.A line labelled, long-run Philips Curve, is perpendicular to the x-axis, and begins from x-axis value 5.5%.Long-run Philips Curve intersects the short-run Philips Curve at point (5.5%, 10%) just pas the midpoint of both lines.Point (7.5, 5) is plotted close to the right end of the short-run Philips Curve.The points are connected to their respective coordinates on the x and y-axes with dotted lines.
-Refer to Figure 13.9.Consider the Phillips curves depicted in the graph above.The Bank of Canada announces its intention to decrease inflation from 10 percent to 5 percent per year, and it succeeds. If the assumptions of the rational expectations school hold true, and the Bank of Canada's announcement is credible, the rate of unemployment will be ________ in the short run.

• A)less than 5.5 percent
• B)5.5 percent
• C)between 5.5 and 7.5 percent
• D)7.5 percent

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