Answer to Question #249457 in Macroeconomics for Olu

Question

According to the short run Phillips curve , which of the following would occur when the SARB increases money supply

A.Both the unemployment and inflation rate will increase
B.Both the unemployment rate and inflation rate will decrease
C.The unemployment rate will decrease
D.The inflation rate will decrease

Answer 1

C. The unemployment rate will decrease.

This is because the rate of money supply will be more than the rate of money demand. This causes interest rates to fall and investments levels to rise, and hence the output levels are increased resulting in a decrease in unemployment rate.