Which of the following is a true statement?
A) There is a long-run trade-off between inﬂation and unemployment.
B) There is no trade-off between inﬂation and unemployment in the long run.
C) The short-run Phillips Curve is horizontal.
D) The long-run Phillips Curve is horizontal.

Question

Quizplus · Accepted Answer

According to the natural rate hypothesis, in the long run, there is no trade-off between inflation and unemployment. This is because any attempt to reduce unemployment below its natural rate through expansionary policies would only lead to higher inflation in the long run with no effect on the unemployment rate. Therefore, option B is the correct answer. Option A suggests a trade-off in the long run, which is incorrect. Option C is incorrect because the short-run Phillips Curve is downward-sloping, not horizontal. Option D is incorrect because the long-run Phillips Curve is vertical, not horizontal.

Which of the Following Is a True Statement