The traditional short-run Phillips curve implies a powerful role for monetary policy. According to the theory, place the events in order based on what happens when the central bank unexpectedly expands the money supply. a. the economy is in equiblirium at full employment (u=u)
b. the central bank injects new money into the money supply
c. aggerate demand increases
d. the inflation rate rises and the unemployment rate falls to a new equilibrium

A -> B -> C -> D

Explanation:

The Short Run Phillips Curve holds that in the short run, there is an inverse relationship between Unemployment and inflation because there is a trade-off between the two. As one rises, the other falls.

The sequence of events is,

At first, the Economy is in Equilibrium at u=u*.

The Central Bank then embarks on Expansionary Monetary policy and injects money into the economy. This will have the effect of putting more money into people's pockets.

As this happens, people will then have more money to buy more goods and services which they will. This is a rise in Aggregate Demand in the economy.

As Aggregate Demand rises, the Economic equation kicks in which is that the higher the demand, the higher the price. This increase will therefore lead to an increase in price levels which is inflation. The Unemployment rate will then fall because as the Phillips Curve shows, Unemployment falls as inflation rises.

the answer is true

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