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

Question

Quizplus · Accepted Answer

The long-run Phillips curve is vertical at the natural unemployment rate, which is the unemployment rate at potential GDP where there is no cyclical unemployment. In the long run, changes in the inflation rate do not affect the unemployment rate, and the economy operates at potential GDP. This is because in the long run, wages and prices are flexible and adjust to changes in monetary policy, which eliminates any effects of inflation on unemployment.

The Long-Run Phillips Curve Is