The vertical long-run Phillips curve occurs in the long run because
A) the aggregate supply curve is vertical which means that changes in aggregate demand will not change unemployment.
B) wage and price rigidities prevent changes in aggregate demand to change unemployment.
C) economic agents are quick to respond to changes in the price level.
D) of lags in monetary and fiscal policies.

Question

Quizplus · Accepted Answer

The vertical long-run Phillips curve occurs in the long run because the aggregate supply curve is vertical which means that changes in aggregate demand will not change unemployment. In the long run, changes in the price level do not affect employment or output levels, and the economy tends to return to its potential level of output regardless of changes in aggregate demand. This is due to the fact that in the long run, the economy adjusts to changes in the price level, which means that wage and price rigidities do not prevent changes in aggregate demand to change unemployment. Economic agents are also quick to respond to changes in the price level, and there may be lags in monetary and fiscal policies, but these are not the primary reasons for the vertical long-run Phillips curve.

The Vertical Long-Run Phillips Curve Occurs in the Long Run