All points on the long-run Phillips curve that are sustainable in the long run due to economy's self-correcting mechanism correspond to the

Question

Quizplus · Accepted Answer

The long-run Phillips curve represents the relationship between unemployment and inflation in the long run, when the economy has had time to adjust to any shocks. In the long run, the economy's self-correcting mechanism will ensure that prices and wages adjust to changes in aggregate demand, and that unemployment returns to its natural rate. Therefore, all points on the long-run Phillips curve correspond to the natural rate of unemployment, which is the rate of unemployment that prevails when the economy is at full employment and there is no cyclical unemployment. Therefore, the correct choice is B, the natural rate of unemployment.

All Points on the Long-Run Phillips Curve That Are Sustainable