The long-run Phillips curve suggests that:
A) a fall in in?ationary expectations will lead to an increase in nominal wages.
B) there is a trade-off between unemployment and in?ation.
C) unemployment is constant in the long run, irrespective of the rate of in?ation.
D) ?scal policy is an effective tool in increasing the level of employment in the long run.

Question

Quizplus · Accepted Answer

The long-run Phillips curve suggests that in the long run, unemployment reaches its natural rate and is not affected by the rate of inflation, indicating that there is no trade-off between inflation and unemployment in the long run. This is because, over time, expectations adjust to actual inflation, rendering monetary policy ineffective in influencing real variables like unemployment.

The Long-Run Phillips Curve Suggests That