In the long run, the Bank of Canada may decrease the unemployment rate only if it is willing to increase the rate of inflation.

Question

Quizplus · Accepted Answer

The Bank of Canada can influence unemployment and inflation through monetary policy, but it does not have to increase inflation to decrease unemployment. The relationship between inflation and unemployment, described by the Phillips Curve, suggests that only in the short run might lower unemployment be associated with higher inflation. In the long run, monetary policy can aim for low and stable inflation, which can coexist with low unemployment if the economy is operating at its potential output.

In the Long Run, the Bank of Canada May Decrease