SUDmit test The graph shows the short-run and long-run Phillips curves. The current inflation rate is 5 percent a year. Inflation rate (percent per year) 12.5- LRPC The Fed announces that it will...

Extracted text: SUDmit test The graph shows the short-run and long-run Phillips curves. The current inflation rate is 5 percent a year. Inflation rate (percent per year) 12.5- LRPC The Fed announces that it will increase the money growth rate so that the inflation rate will rise to 6 percent a year. 10.0- If no one believes the Fed and expected inflation remains at 5 percent a year, explain the effect of the Fed's action on inflation and unemployment next year. Choose the correct statement. 7.5- 5.0- O A. The inflation rate rises and the unemployment rate will increase in a movement up the long-run Phillips curve. SRPC O B. The unemployment rate will decrease but inflation will not change. 2.5- OC. Nothing will happen. It takes more than a year for unemployment and inflation to begin to respond to a speed up in money growth. 0.0- O D. The inflation rate rises and the unemployment rate decreases in a movement up the short-run Phillips curve. 10 Unemployment rate (percent of labor force) empts Next