Friedman and Phelps argued that the Phillips curve is not stable over time because
A)any kind of stabilization policy immediately affects nominal wages
B)any shift in aggregate demand will immediately also shift the Phillips curve
C)workers' expectations about price changes are only wrong temporarily
D)firms change wage rates for workers as soon as product prices change, so profits will not suffer
E)firms always immediately change their product prices in response to a change in money supply

Question

Quizplus · Accepted Answer

Friedman and Phelps argued that the Phillips curve is not stable over time because workers' expectations about price changes are only wrong temporarily. As workers adjust their expectations, the Phillips curve shifts over time, making it difficult to use stabilization policies like monetary or fiscal policy to achieve long-term inflation and unemployment targets. The other answer choices are either incorrect or only partially explain why the Phillips curve is not stable over time.

Friedman and Phelps Argued That the Phillips Curve Is Not