In the long run, the unemployment rate is independent of inflation, and the Phillips curve is vertical at the natural rate of unemployment.

Question

Quizplus · Accepted Answer

This is known as the natural rate hypothesis in macroeconomics, which states that in the long run, unemployment tends towards a level that is determined by structural factors such as demographics, technology, and labor market institutions. Inflation, on the other hand, is driven by monetary factors such as changes in the money supply, interest rates, and expectations. Therefore, in the long run, changes in inflation do not affect the natural rate of unemployment, and the Phillips curve becomes vertical at this level.

In the Long Run, the Unemployment Rate Is Independent of Inflation