The long-run Phillips curve would shift to the left if
A)the money supply growth rate increased or labor markets become more flexible.
B)the money supply growth rate increased but not if labor markets become more flexible.
C)labor markets become more flexible but not if the money supply growth rate increased.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

The long-run Phillips curve represents the relationship between inflation and unemployment in the long run, assuming that wages and prices fully adjust to changes in the economy. A shift to the left of the long-run Phillips curve means that at any given level of unemployment, the economy will experience lower inflation. This can happen if labor markets become more flexible, meaning that workers are more willing to accept job offers at lower wages, reducing the pressure on firms to raise prices. However, an increase in the money supply growth rate may lead to higher inflation in the short run, but it will not shift the long-run Phillips curve because it does not affect the underlying structural features of the economy. Therefore, choice C is the best answer.

The Long-Run Phillips Curve Would Shift to the Left If