If the Fed uses monetary policy to reduce the money supply and inflation, inflation expectations would ▼ increase decrease remain the same. Assume that inflation expectations decrease. What will happen to the short-run Phillips curve? The short-run Phillips curve will shift to the ▼ left right.

Question

Social Studies

Dawn

20 April, 08:30

If the Fed uses monetary policy to reduce the money supply and inflation, inflation expectations would ▼ increase decrease remain the same. Assume that inflation expectations decrease. What will happen to the short-run Phillips curve? The short-run Phillips curve will shift to the ▼ left right.

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Answers (1)

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Giana Crosby · Answer 1

The curve would shift to the right

Explanation:

This is due to changes in inflation expectation, though rational employees recognise that their norminal wages is not in place with the inflation so real wages would decrease which would give rise to need for wage renegotiation.