Suppose the long-run Phillips curve shifts to the right. For any given rate of money growth and inflation, how would unemployment and output change?
A) Unemployment would be higher, and output would be lower.
B) Unemployment would be higher, and output would be higher.
C) Unemployment would be lower, and output would be lower.
D) Unemployment would be lower, and output would be higher.

Question

Quizplus · Accepted Answer

The long-run Phillips curve represents the trade-off between inflation and unemployment in the long run. When it shifts to the right, it means that the economy can sustain lower levels of unemployment only at the cost of higher inflation. Therefore, for any given rate of money growth and inflation, unemployment would be higher, and output would be lower. This is because higher inflation typically reduces real output, while higher unemployment represents a contraction in the economy's productive capacity.

Suppose the Long-Run Phillips Curve Shifts to the Right