The tradeoff between inflation and unemployment does not exist in the long run because people will adjust their expectations so that expected inflation:
A) exceeds the inflation rate.
B) equals the inflation rate.
C) is below the inflation rate.
D) equals the inflation rate of the previous year.

Question

Quizplus · Accepted Answer

This is known as the long-run Phillips curve, which shows that in the long run, there is no tradeoff between inflation and unemployment as people adjust their expectations of inflation to match the actual rate of inflation. Therefore, expected inflation will equal the actual inflation rate, creating a vertical Phillips curve where unemployment is determined by non-monetary factors such as demographics and technology.

The Tradeoff Between Inflation and Unemployment Does Not Exist in the Long