Monetary Policy in Hyperion
In Hyperion the Department of Finance is responsible for monetary policy. Hyperion has had an inflation rate of 25% for many years.
-Refer to Monetary Policy in Hyperion.Suppose Hyperion has had the same inflation rate for a long time.Which,if either,of the following ideas imply that the unemployment rate in Hyperion would be above the natural rate.

Question

Quizplus · Accepted Answer

The long-run Phillips curve suggests that there is no trade-off between inflation and unemployment in the long run, implying that unemployment will return to the natural rate regardless of inflation. The Classical dichotomy also implies that real variables like unemployment are not affected by nominal variables like inflation in the long run. Therefore, neither concept suggests that unemployment would be above the natural rate due to persistent inflation.