Question

The traditional short-run Phillips curve implies a powerful role for monetary policy. According to the theory, place the events in order based on what happens when the central bank unexpectedly expands the money supply.

a. the economic
b. the central bank
c. aggerate
d. the inflation

Answer 1

D. The inflation rate rise and the unemployment rate falls to a new equilibrium where u<u1

Step-by-step explanation:

Phillips curve explains the relation of inflation with unemployment. The theory expects that if inflation increases, unemployment will decrease. When economic growth, inflation happens and there will be more jobs available. This will end up reducing unemployment. The 1970's stagflation proves that this theory doesn't work for every condition.

Expanding the money supply is a fiscal stimulus that will increase aggregate demand. It will increase inflation and then decrease the unemployment rate.