The long- run Phillips curve is .
A) horizontal at the actual inflation rate
B) vertical at the actual inflation rate
C) horizontal at the expected inflation rate
D) vertical at the natural unemployment rate

Question

Quizplus · Accepted Answer

The long-run Phillips curve is vertical at the natural unemployment rate due to the fact that in the long run, changes in inflation will only affect the nominal but not the real variables. In the long run, the economy will always return to its natural rate of unemployment, where there is no cyclical unemployment, and changes in the aggregate demand or supply shocks will only affect the price level and not the unemployment rate. Therefore, the long-run Phillips curve is vertical at the natural unemployment rate with no relationship between inflation and unemployment.

The Long- Run Phillips Curve Is