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 short-run.
C) The short-run Phillips Curve is horizontal.
D) The long-run Phillips Curve is vertical.

Question

Quizplus · Accepted Answer

The long-run Phillips Curve is vertical, meaning that in the long run, changes in inflation do not affect the unemployment rate, and the economy returns to the natural rate of unemployment. There is no long-run trade-off between inflation and unemployment. Option A is incorrect because it refers to a trade-off that only exists in the short run, not in the long run. Option B is incorrect because there is a short-run trade-off between inflation and unemployment, which is captured by the downward sloping short-run Phillips Curve. Option C is incorrect because the short-run Phillips Curve is downward sloping, not horizontal.

Which of the Following Is a True Statement