If employees and employers always accurately predict inflation, what is the shape of the Phillips curve?
A)The Phillips curve is horizontal in the short and long run.
B)The Phillips curve is vertical in the short and long run.
C)The Phillips curve is vertical in the short run and upward sloping in the long run.
D)The Phillips curve is downward sloping in the short run and vertical in the long run.

Question

Quizplus · Accepted Answer

If employees and employers always accurately predict inflation, then there would be no trade-off between inflation and unemployment, and the Phillips curve would be vertical in both the short and long run. This implies that changes in the level of aggregate demand would have no effect on the unemployment rate, and only affect the level of inflation.

If Employees and Employers Always Accurately Predict Inflation, What Is