The basic assertion of those who argue that the long-run Phillips curve is vertical is that
A) both unemployment and price stability can be achieved through proper discretionary monetary and fiscal policies.
B) over the long run, the Phillips curve is useful for making economic policy tradeoffs between inflation and unemployment.
C) inflation is caused by cost-push forces and can be reduced only by wage and price controls.
D) expansionary monetary and fiscal policies improve the rate of unemployment only temporarily because they also change inflationary expectations.
E) the natural rate of unemployment will fall to zero over time.

Question

Quizplus · Accepted Answer

The assertion that the long-run Phillips curve is vertical suggests that expansionary monetary and fiscal policies may improve the rate of unemployment only temporarily because they also change inflationary expectations. This means that sustained efforts to reduce unemployment below its natural rate can result in an increase in inflation expectations, contributing to higher inflation rates in the long run. Therefore, policymakers should be cautious about using expansionary policies to permanently reduce unemployment, as it may lead to an increase in inflation over the long run.

The Basic Assertion of Those Who Argue That the Long-Run