The modern view of the Phillips curve suggests that
A) when inflation is less than anticipated, unemployment will fall below the natural rate.
B) when inflation is steady, actual unemployment will equal the natural rate of unemployment.
C) systematic demand stimulus policies will be unable to affect prices in the long run.
D) there will be a trade-off between inflation and unemployment in the long run.

Question

Quizplus · Accepted Answer

The modern view of the Phillips curve, often referred to as the "natural rate of unemployment" hypothesis, suggests that in the long run, there is no trade-off between inflation and unemployment. Instead, when inflation is steady, actual unemployment will equal the natural rate of unemployment. This is because any attempt to systematically use demand stimulus policies to keep unemployment below its natural rate will only result in higher inflation.

The Modern View of the Phillips Curve Suggests That