Question

All else equal, country A has a higher money supply growth rate and a long-run Phillips curve that is farther to the left than country B's. In the long run as compared to country B, country A will have:________
a. lower unemployment and lower inflation.

b. higher unemployment and lower inflation.

c. lower unemployment and higher inflation.

d. higher unemployment and higher inflation.

Answer 1

Answer:

c. lower unemployment and higher inflation.

Explanation:

Since Country A's LRPC lies to the left of Country B's LRPC, it implies that its natural rate of unemployment is less than that of Country B's. Also Country A's money supply growth rate is higher. This suggests that Country A will have a higher inflation and a lower unemployment rate. Attach below is the graph illustration.