According to the long-run Phillips curve, which of the following would not be the end result of expansionary monetary policy when unemployment is at its natural rate?
A) Higher inflation
B) Rising production costs
C) No change in potential real GDP
D) A decrease in unemployment
E) An increase in prices

Question

Quizplus · Accepted Answer

According to the long-run Phillips curve, expansionary monetary policy will not result in a decrease in unemployment when unemployment is at its natural rate. This is because the natural rate of unemployment represents the rate at which the labor market is in equilibrium and there are no cyclical unemployment effects. Therefore, any short-term decrease in unemployment caused by expansionary monetary policy will eventually be offset by upward pressure on wages and prices, bringing unemployment back to its natural rate in the long run. The other choices, A, B, C, and E, are all potential outcomes of expansionary monetary policy according to the long-run Phillips curve.

According to the Long-Run Phillips Curve, Which of the Following