The long-run Phillips curve would shift left if

Question

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The long-run Phillips curve represents the relationship between inflation and unemployment after all temporary factors have dissipated, and when expectations have adjusted to the new inflation rate. The curve is vertical at the natural rate of unemployment, which is determined by structural factors such as labor market institutions, technology, and demographics. If labor markets become more flexible, meaning that wages and prices adjust more easily to changes in supply and demand, the natural rate of unemployment would likely decrease. This would shift the long-run Phillips curve to the left, indicating that a lower rate of inflation can be achieved without an increase in unemployment. An increase in the money supply growth rate, on the other hand, could temporarily reduce unemployment and increase inflation, but it would not affect the natural rate of unemployment or the long-run Phillips curve in the absence of any other changes. Therefore, (A) is incorrect, and (B) is incomplete. (D) is also incorrect.

The Long-Run Phillips Curve Would Shift Left If