If individuals adapt their expectations concerning the rate of inflation,the long-run Phillips curve is
A) horizontal.
B) vertical.
C) downward sloping from left to right.
D) first upward, then downward sloping from left to right.
E) shifting upward and out from the origin.

Question

Quizplus · Accepted Answer

The long-run Phillips curve is vertical because in the long run, there is no tradeoff between inflation and unemployment. Regardless of the rate of inflation, the economy will return to its natural rate of unemployment. If individuals adapt their expectations concerning inflation, it means that they anticipate future inflation more accurately and adjust their behavior accordingly, which eliminates any short-term effects on employment. Therefore, the long-run Phillips curve becomes vertical.

If Individuals Adapt Their Expectations Concerning the Rate of Inflation,the