Monetary Policy in Flosserland

In Flosserland, the Department of Finance is responsible for monetary policy. Flosserland has had an inflation rate of 25% for many years.

-Refer to Monetary Policy in Flosserland.Suppose Flosserland has had the same inflation rate for a long time.Which,if either,of the following ideas imply that the unemployment rate in Flosserland would be above the natural rate.
A)both the Classical dichotomy and the long-run Phillips curve
B)the Classical dichotomy,but not the long run Phillips curve
C)the long-run Phillips curve,but not the Classical dichotomy
D)neither the long-run Phillips curve nor the Classical dichotomy

Question

Monetary Policy in Flosserland

In Flosserland, the Department of Finance is responsible for monetary policy. Flosserland has had an inflation rate of 25% for many years.

-Refer to Monetary Policy in Flosserland.Suppose Flosserland has had the same inflation rate for a long time.Which,if either,of the following ideas imply that the unemployment rate in Flosserland would be above the natural rate.
A)both the Classical dichotomy and the long-run Phillips curve
B)the Classical dichotomy,but not the long run Phillips curve
C)the long-run Phillips curve,but not the Classical dichotomy
D)neither the long-run Phillips curve nor the Classical dichotomy

Quizplus · Accepted Answer

The Classical dichotomy and the long-run Phillips curve both suggest that in the long run, monetary factors like inflation do not affect real variables such as unemployment. Therefore, neither implies that the unemployment rate would be above the natural rate in the long run.