Based on the theory of the expectations-augmented Phillips curve,if the expected inflation rate is 2%,the short-run Phillips curve will
A)have a kink at an inflation rate of 2%.
B)be the same as the long-run Phillips curve.
C)intersect the long-run Phillips curve at the natural unemployment rate, when the inflation rate is 2%.
D)be horizontal at an expected inflation rate of 2%.

Question

Quizplus · Accepted Answer

According to the expectations-augmented Phillips curve theory, the short-run Phillips curve will intersect the long-run Phillips curve at the natural unemployment rate when the expected inflation rate is 2%. Therefore, the correct answer is C. There is no kink in the Phillips curve, and it is not the same as the long-run Phillips curve, which is vertical at the natural unemployment rate. Similarly, the short-run Phillips curve is not horizontal at an expected inflation rate of 2% either.

Based on the Theory of the Expectations-Augmented Phillips Curve,if the Expected