In the long run, the economy is better off if policymakers exploit the short-run tradeoff between inflation and the unemployment rate.

Question

Quizplus · Accepted Answer

This statement goes against the conventional wisdom of macroeconomic policy, which asserts that there is no long-run tradeoff between inflation and unemployment. The idea that policymakers can exploit such a tradeoff is known as the Phillips curve and has been largely discredited by empirical evidence. In the long run, attempts to reduce unemployment through monetary or fiscal stimulus will eventually lead to higher inflation without any lasting improvement in employment. Therefore, the economy is not better off if policymakers try to manipulate the short-run tradeoff between inflation and unemployment.

In the Long Run, the Economy Is Better Off If