I am getting really confused about all this unanticipated/anticipated and credible/not credible movements… My question is from Schweser practice exams Vol. 1 , Exam 1 Afternoon session, Q#34 The economy is at fully employment and the central gov’t announces money supply decrease, which is NOT credible. What are the short-run and long-run effects of the impact on inflation and employment? The answer is short run: employment and inflation effects move in the SAME direction long run: employment and inflation effects move in DIFFERENT direction I understand the short-run effect. In the short-run, the decrease in AS is larger than the increase in AD, so employment is reduced and inflation is reduced (lower than expected). However, I do not understand how the long-run effects are different. Schweser says that the inflation rate is reduced but employment increases back to natural rate of unemployment. I might be looking at this a different way but I feel that employment and inflation always move in the same direction. Could it be that the fact that employment moves back to the natural rate of unemployment is considered an increase in employment? Sorry, this is so long. I feel like I’m babbling…If someone can clear this up, that would be great!