If the long-run Phillips curve shifts to the right,then for any given rate of money growth and inflation the economy has
A)higher unemployment and lower output.
B)higher unemployment and higher output.
C)lower unemployment and lower output.
D)lower unemployment and higher output.

Question

Quizplus · Accepted Answer

If the long-run Phillips curve shifts to the right, it means that there is now a higher natural rate of unemployment (the rate of unemployment consistent with stable inflation) in the economy. This implies that for any given rate of money growth and inflation, the economy will have higher unemployment and lower output. This is because firms will need to reduce production and lay off workers in order to maintain their profit margins in the face of higher costs, due to the fact that wages are sticky in the short run.

If the Long-Run Phillips Curve Shifts to the Right,then for Any