if central bank unexpected shifts to a more restrictive monetory policy, the most likely effect is? how unexpected play a role here? I think a more restrictive monetory policy means tighten money supply. So will shift SRAS curve downward, which push the price down. , reduce the real interest rate. the effect of real interest rate will : less capital inflow from other country, so domenstic currency depreciate. ? Thanks.
unexpected i believe will cause a movement along the SRAS line instead of shifting the line down. This is because not all suppliers will have prepared for it, thus supply will not be lower at all levels. unexpected decrease in money supply will lead to increase in unemployment from natural rate. Some one please correct me if I’m wrong. Edit: actually the situation i described is for the phillips curve.
i just visualise the Phillips curves… vertical Long-run line at the natural rate of unemployment (LRPC) “J-curve” short-run lines, intersecting the LRPC at the expected inflation levels… (SRPC) so, if changes are UNEXPECTED, then investors will remain on the same SRPC curve (since they have the same expectations they had before) if changes are EXPECTED, then this causes a shift to the SRPC (since their inflationary expectations change)
thanks for confirming that bluey
Restricitve Monetary Policy>> High Interest Rates>> S-R Unemployment Rise Am i missing sth here?
Unexpect means that it is likely there will be recession and unemployment will be higher due to movement downward along on the SRPC. Interest rate will go up due to reduce money supply. If it is expected, then if will help to reduce inflation without a recession. SRPC will shift downward.