The long-run Phillips curve is a
A) horizontal line indicating a positive relationship between inflation and unemployment.
B) vertical line indicating a positive relationship between inflation and unemployment.
C) vertical line that shows the relationship between inflation and unemployment when the economy is at full employment.
D) horizontal line that shows the relationship between inflation and unemployment when the economy is at full employment.
E) straight line with a 45 degree slope showing the long-run relationship between the inflation rate and the expected inflation rate.

Question

Quizplus · Accepted Answer

The long-run Phillips curve is a vertical line that shows the relationship between inflation and unemployment when the economy is at full employment. This is because in the long run, the economy returns to its natural rate of unemployment, and any attempt to permanently reduce unemployment through expansionary policies will only lead to higher inflation. Thus, the only way to reduce inflation is through policies that reduce aggregate demand and return the economy to full employment.

The Long-Run Phillips Curve Is a