The long-run Phillips curve is located at the natural rate of unemployment.

Question

Quizplus · Accepted Answer

The long-run Phillips curve is vertical and located at the natural rate of unemployment, indicating that there is no trade-off between inflation and unemployment in the long run. This is because in the long run, monetary policy can only affect nominal variables (such as inflation), not real variables (such as the unemployment rate). Therefore, the natural rate hypothesis implies that there is a long-run equilibrium where the unemployment rate is at its natural rate, and any attempts to reduce unemployment below this rate will only lead to higher inflation without any sustained reduction in the unemployment rate.

The Long-Run Phillips Curve Is Located at the Natural Rate