The long-run Phillips curve shows the relationship between
A) inflation and unemployment at full employment.
B) aggregate demand and aggregate supply at full employment.
C) aggregate demand and interest rates at full employment.
D) inflation and interest rates at full employment.
E) the price level and real GDP when the economy is not at full employment.

Question

Quizplus · Accepted Answer

The long-run Phillips curve shows the relationship between inflation and unemployment at full employment. In the long run, the economy always returns to full employment, and the relationship between inflation and unemployment is determined by factors other than just macroeconomic policies, such as supply shocks and technology. Therefore, the Phillips curve becomes vertical at full employment, indicating that there is no tradeoff between inflation and unemployment in the long run.

The Long-Run Phillips Curve Shows the Relationship Between