Where does the short-run Phillips curve intersect the long-run Phillips curve?
A) where expected inflation is greater than actual inflation
B) where expected inflation equals actual inflation
C) where the quantity of goods and services demanded equals the quantity supplied
D) where the quantity of labour demanded equals the quantity supplied

Question

Quizplus · Accepted Answer

The short-run Phillips curve represents the inverse relationship between unemployment and inflation in the short run, while the long-run Phillips curve implies that this relationship disappears in the long run as the economy adjusts to its natural rate of unemployment. The point where the two curves intersect is where actual inflation equals expected inflation, which represents the economy's long-run equilibrium. Therefore, the correct choice is B - where expected inflation equals actual inflation.

Where Does the Short-Run Phillips Curve Intersect the Long-Run Phillips