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.
Answer: B
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