The importance of the vertical long-run Phillips curve hypothesis is its implication that
A) any increase in the rate of inflation caused by monetary and fiscal policies designed to reduce unemployment is temporary.
B) price controls can do no good.
C) monetary and fiscal policies designed to reduce unemployment below its natural rate do so temporarily.
D) to solve the inflation-unemployment problem, labor unions must recognize that their wage gains are eroded by inflation.
E) expansionary monetary or fiscal policy shifts the long-run Phillips curve to the left.

Question

Quizplus · Accepted Answer

The vertical long-run Phillips curve hypothesis implies that monetary and fiscal policies designed to reduce unemployment below its natural rate can only do so temporarily. This means that any increase in the rate of inflation caused by such policies is also temporary. This has important implications for policymakers as it suggests that attempting to permanently reduce unemployment through expansionary policies will ultimately lead to higher inflation without any permanent reduction in unemployment.

The Importance of the Vertical Long-Run Phillips Curve Hypothesis Is