The vertical long-run Phillips curve
A) shows the Fed's employment options
B) is vertical because the Fed refuses to change the unemployment rate in the long run
C) indicates that the Fed cannot affect the unemployment rate in the long run
D) is fixed permanently
E) measures recessionary pressures

Question

Quizplus · Accepted Answer

The vertical long-run Phillips curve indicates that the Fed cannot affect the unemployment rate in the long run. This is because the unemployment rate in the long run is determined by structural factors such as demographics, technology, and institutions, which are beyond the control of monetary policy. The Fed can only influence the inflation rate in the long run, but not the unemployment rate. Therefore, the vertical long-run Phillips curve represents the natural rate of unemployment, which is the unemployment rate consistent with stable inflation in the long run.

The Vertical Long-Run Phillips Curve