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Consider the following Phillips curves. Which of the following is most likely to happen in the short run because of an expans

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Answer #1

Ans. The correct option is: (a) A move from point A to point B.

As there is monetary expansion, it will increase the aggregate demand in the economy and shift the aggregate demand curve to the right. It causes the price level and output to rise. But for phillip curve, there will be a movement along the curve. Movement from point A to point B shows, an increase in inflation and decrease in unemployment. As output rises, firm employs more labor which decreases unemployment rate.

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