A policy change that reduced the natural rate of unemployment would shift both the long-run aggregate-supply curve and the long-run Phillips curve left.

Question

Quizplus · Accepted Answer

A policy change that reduces the natural rate of unemployment would shift the long-run aggregate-supply curve to the right, indicating an increase in potential output. It would shift the long-run Phillips curve to the left, reflecting a lower natural rate of unemployment at any given rate of inflation, but the direction of the shift for the aggregate-supply curve and the Phillips curve is not the same.

A Policy Change That Reduced the Natural Rate of Unemployment