The tradeoff between inflation and unemployment does not exist in the long run because people will adjust their expectations so expected inflation:
A) exceeds the inflation rate.
B) equals the inflation rate.
C) is below the inflation rate.
D) equals the inflation rate of the previous year.

Question

Quizplus · Accepted Answer

In the long run, people adjust their expectations of inflation based on past experience and other factors. Therefore, if the actual inflation rate matches the expected inflation rate, there is no tradeoff between inflation and unemployment. Hence, the expected inflation rate will equal the actual inflation rate in the long run.

The Tradeoff Between Inflation and Unemployment Does Not Exist in the Long