The long- run Phillips curve is
A) the vertical sum of the short- run Phillips curves.
B) the horizontal sum of the short- run Phillips curves.
C) vertical at the natural unemployment rate.
D) vertical at potential GDP.

Question

Quizplus · Accepted Answer

The long-run Phillips curve (LRPC) is vertical at the natural unemployment rate, which represents the rate of unemployment when the economy is producing at potential GDP. This is because in the long run, changes in the rate of inflation do not affect the rate of unemployment, as there is no permanent trade-off between inflation and unemployment. Therefore, the LRPC reflects the concept of the non-accelerating inflation rate of unemployment (NAIRU), which is the lowest rate of unemployment at which inflation is stable in the long run. The LRPC can be thought of as the underlying trend of the short-run Phillips curve, which can shift due to temporary shocks to the economy.

The Long- Run Phillips Curve Is