8. Problems and Applications Q5 The following graph illustrates long-run and short-run Phillips curves for an economy that is currently at point A. Inflation Rate Unemployment Rate SRPC 1 SRPC 2 SRPC 3 A B C D E Long-Run Phillips Curve To reduce inflation, the Fed uses policy. In the short run, the economy moves from point A to point . In the long run, the economy will move to point . This illustrates that the of reducing inflation are temporary and the of reducing inflation are permanent