In the long run, people come to expect whatever inflation rate the Bank of Canada chooses to produce, so unemployment returns to its natural rate.

Question

Quizplus · Accepted Answer

This is known as the Phillips Curve theory, which suggests that in the long run, there is a trade-off between unemployment and inflation, and that people will eventually come to anticipate the inflation rate chosen by the central bank. As a result, the unemployment rate will return to its natural rate.

In the Long Run, People Come to Expect Whatever Inflation