If the Fed wants to move the economy up and to the left along the Phillips curve,what must it do?
A) Increase the rate at which the aggregate supply curve shifts upward
B) Decrease the rate at which the aggregate demand curve shifts rightward
C) Increase the rate at which the aggregate demand curve shifts rightward
D) Increase the rate at which the aggregate demand curve shifts leftward
E) Decrease the rate at which the aggregate supply curve shifts upward.

Question

Quizplus · Accepted Answer

Moving the economy up and to the left along the Phillips curve means reducing the unemployment rate while keeping inflation stable, which can be achieved by increasing the rate at which the aggregate demand curve shifts rightward. This leads to higher levels of output and employment in the short run, which eventually leads to higher levels of productivity and potential output in the long run. Therefore, choice C, increasing the rate at which the aggregate demand curve shifts rightward, is the best option.

If the Fed Wants to Move the Economy Up and to the Left