According to the adaptive expectations view, the Phillips curve is
A) vertical in both the short run and the long run.
B) downward sloping in the short run and vertical in the long run.
C) downward sloping in both the short run and the long run.
D) horizontal in both the short run and the long run.
E) vertical in the short run and downward sloping in the long run.

Question

Quizplus · Accepted Answer

According to the adaptive expectations view, in the short-run, the Phillips curve is downward sloping, as there is an inverse relationship between inflation and unemployment due to nominal wages being sticky in the short run. However, in the long-run, the Phillips curve becomes vertical as there is no longer a tradeoff between inflation and unemployment and the economy moves back to its natural rate.

According to the Adaptive Expectations View, the Phillips Curve Is