112: The Medium run By far, we have already got the following three relation 阝(9t-9 yt a(ut gvt= gmt Our task is now to see what these three relation imply for the effects of money growth on output, unemployment and inflation. We can go some way already. Take for example a decrease in money growth From the aggregate demand relation, given inflation, lower money growth implies a decrease in output growth From Okun's law, this decrease in growth leads to an increase in unemployment From the Phillips curve, higher unemployment implies a decrease in inflation 2003-7-28 102003-7-28 10 11-2: The Medium Run By far, we have already got the following three relation: ut –ut-1= -β(gyt - gy ) πt -πt-1= -α(ut - un ) gyt = gmt -πt Our task is now to see what these three relation imply for the effects of money growth on output, unemployment and inflation. We can go some way already. Take for example a decrease in money growth: •From the aggregate demand relation,given inflation, lower money growth implies a decrease in output growth. •From Okun’s law, this decrease in growth leads to an increase in unemployment •From the Phillips curve, higher unemployment implies a decrease in inflation