The automatic adjustment mechanism that makes the economy move towards the long-run Phillips Curve is:
A) Expansionary fiscal or monetary policy
B) Inflation expectations and wage adjustments
C) Contractionary fiscal or monetary policy
D) Increases in productivity over time

Question

Quizplus · Accepted Answer

The automatic adjustment mechanism that makes the economy move towards the long-run Phillips Curve is inflation expectations and wage adjustments. This means that as expectations of inflation increase, workers will demand higher wages, leading to an increase in the prices of goods and services. This process continues until prices stabilize and wages adjust to the new level of inflation, resulting in a movement along the Phillips Curve towards the natural rate of unemployment. This mechanism occurs without the need for any policy intervention, making it an automatic adjustment mechanism.

The Automatic Adjustment Mechanism That Makes the Economy Move Towards