Refer to the above diagram and assume the economy is initially at point b₁.According to the adaptive expectations theorists, the long-run relationship between the unemployment rate and the rate of inflation is represented by: A)the line connecting B₁ and C₁. B)the line through B₁, B₂, B₃, and B₄. C)the line connecting C₁ and B₂. D)any line parallel to the horizontal axis.

Question

Quizplus · Accepted Answer

According to adaptive expectations theorists, the long-run Phillips curve is vertical, indicating that there is no trade-off between unemployment and inflation in the long run. Therefore, the long-run relationship between the unemployment rate and the rate of inflation is represented by a vertical line passing through the natural rate of unemployment. The points B₁, B₂, B₃, and B₄ are all on this vertical line, indicating the long-run Phillips curve. Therefore, the best choice is B.

Refer to the Above Diagram and Assume the Economy Is