The long-run Phillips curve is vertical at the nonaccelerating inflation rate of unemployment (NAIRU) because an unemployment rate _____ the NAIRU will lead to _____ inflation.

Question

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The long-run Phillips curve is vertical at the NAIRU because it represents the idea that in the long run, there is no trade-off between inflation and unemployment. An unemployment rate below the NAIRU suggests that the economy is overheating, leading to higher demand for goods and services, which in turn leads to ever-accelerating inflation as employers bid up wages to attract scarce labor, and those increased costs are passed on as higher prices.

The Long-Run Phillips Curve Is Vertical at the Nonaccelerating Inflation