The long-run Phillips curve shows the relationship between the inflation rate and the unemployment rate when the
A) real interest rate is zero.
B) actual inflation rate equals the expected inflation rate.
C) real interest rate equals the nominal interest rate.
D) inflation rate is zero.

Question

Quizplus · Accepted Answer

The long-run Phillips curve shows the relationship between the inflation rate and the unemployment rate when the actual inflation rate equals the expected inflation rate. This is because in the long run, people adjust their expectations of inflation to match actual inflation, and therefore the Phillips curve becomes a vertical line at the natural rate of unemployment. The other options are not relevant to the long-run Phillips curve.

The Long-Run Phillips Curve Shows the Relationship Between the Inflation