Why doesn't the Phillips curve represent a permanent trade-off between unemployment and inflation in the long run? A. In the long run, aggregate demand sets the price level. B. In the long run, aggregate supply is upward sloping. C. In the long run, aggregate supply is vertical. D. "In the long run, we're all dead."

Question

James

Business

12 July, 06:38

Why doesn't the Phillips curve represent a permanent trade-off between unemployment and inflation in the long run? A. In the long run, aggregate demand sets the price level. B. In the long run, aggregate supply is upward sloping. C. In the long run, aggregate supply is vertical. D. "In the long run, we're all dead."

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Answers (1)

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Rock · Answer 1

C. In the long run, aggregate supply is vertical.

Explanation:

Phillips curve: A curve showing the short-run relationship between the unemployment rate and the inflation rate. It says when inflation is high, unemployment tends to be low; when inflation is low, unemployment tends to be high. The short-run Phillips curve exhibits a a trade-off between inflation and unemployment, whereas in the long-run Phillips curve does not, as in the long run it become unrelated. Therefore, ploting both curve on graph, it will show phillips curve is vertical at the natural rate of unemployment.