Friedman and Phelps argued that
A)if peoples' inflation expectations were fixed,then an increase in the money supply growth rate could not change output in the short or long run.
B)if peoples' inflation expectations were fixed,then a decrease in the money supply growth rate could raise output and unemployment in the short run.
C)any change in unemployment created by making aggregate demand increase more rapidly is temporary because people eventually revise their inflation expectations.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

Friedman and Phelps both argued that any change in unemployment caused by increasing aggregate demand is temporary because people will eventually revise their inflation expectations. This means that in the long run, increases in aggregate demand will only lead to higher inflation, but not to a sustained increase in output or employment levels. Therefore, the correct answer is C.

Friedman and Phelps Argued That