4. The costs of inflation and of combating inflation

The following graph plots a short-run Phillips curve for a hypothetical economy.

Show the short-run effect of a contractionary monetary policy by dragging the point along the short-run Phillips curve (SRPC) or shifting the curve to the appropriate position.

\f12 LRPC O 1 1 10 SRPC m O CO LRPC INFLATION RATE (Percent) SRPC 2 3 4 5 UNEMPLOYMENT (Percent)