The short-run Phillips curve always intersects the long-run Phillips curve at:
A)Zero inflation.
B)At an accelerating inflation rate.
C)The expected inflation rate.
D)The same rate over time.

Question

The short-run Phillips curve always intersects the long-run Phillips curve at:
A)​Zero inflation.
B)​At an accelerating inflation rate.
C)​The expected inflation rate.
D)​The same rate over time.

Quizplus · Accepted Answer

The short-run Phillips curve shows the relationship between inflation and unemployment in the short-run while the long-run Phillips curve shows that there is no trade-off between inflation and unemployment in the long run. The intersection occurs at the expected inflation rate, which is the rate of inflation that people and businesses expect. This is because in the long run, prices and wages are flexible and adjust to changes in the inflation rate, so any attempt to maintain unemployment below its natural rate will result in higher inflation. Thus, the intersection of the short-run and long-run Phillips curves occurs at the expected inflation rate, which represents the rate of inflation consistent with the natural rate of unemployment.

The Short-Run Phillips Curve Always Intersects the Long-Run Phillips Curve