Question

In the long run, the Phillips Curve is:_________
a) horizontal at a fixed price level vertical at the natural rate of unemployment
b) downward sloping, illustrating the tradeoff between inflation and unemployment
c) upward sloping, illustrating a positive relationship between inflation and unemployment

Answer 1

Answer:

a) horizontal at a fixed price level, but vertical at the natural rate of unemployment

Explanation:

Phillip Curve was proposed in 1958 by economist A.W. Phillips. The Phillips curve depicts the inverse relationship between inflation and unemployment: as unemployment decreases, inflation increases.

While stable and predictable, in the long run;

Phillips Curve vertical line shows relationship between inflation and unemployment when the economy is at full employment, such that, inflation and unemployment are unrelated in the long run.