In the 1960s, many economists and policy makers considered the trade-off between inflation and unemployment revealed in the Phillips curve to be permanent. This belief was challenged by ________, who argued that there is no trade-off between inflation and unemployment in the long run.

Question

Quizplus · Accepted Answer

Milton Friedman and Edmund Phelps challenged the belief in the permanent trade-off between inflation and unemployment by introducing the idea of the natural rate of unemployment, which suggests that in the long run, the unemployment rate tends to converge toward a level that is independent of the inflation rate, and therefore, there is no trade-off between inflation and unemployment in the long run. Robert Lucas and Thomas Sargent, as well as Finn Kydland and Edward Prescott, also contributed to the development of the natural rate of unemployment theory. However, Friedman and Phelps were the first to propose this idea in the late 1960s and early 1970s. Paul Samuelson and James Tobin were proponents of the Phillips curve and did not challenge the trade-off between inflation and unemployment.

In the 1960s, Many Economists and Policy Makers Considered the Trade-Off