What is the long-run effect of a decrease in expected inflation predicted by the Phillips curve model?
A) lower inflation, but no change in unemployment
B) lower inflation and lower output
C) higher inflation and higher unemployment
D) no change in inflation, but higher unemployment

Question

Quizplus · Accepted Answer

According to the Phillips curve model, there is an inverse relationship between expected inflation and unemployment in the short run. However, in the long run, the Phillips curve becomes vertical, meaning that changes in expected inflation have no effect on the unemployment rate. Thus, a decrease in expected inflation would lead to a decrease in actual inflation in the long run, but would have no effect on the unemployment rate.

What Is the Long-Run Effect of a Decrease in Expected