In the long run, the Phillips curve ________.

Question

BlackTom AI · Accepted Answer

The long-run Phillips curve is vertical at the natural rate of unemployment, so it implies no long-term tradeoff between unemployment and inflation.

1) Relevant knowledge points and concepts
- Short-run Phillips curve: shows a negative relationship between inflation and unemployment when inflation expectations are fixed; policymakers can temporarily lower unemployment by accepting higher inflation.
- Adaptive/expected inflation and accelerationist view (Friedman-Phelps): once people adjust expectations, the short-run tradeoff disappears.
- Long-run Phillips curve (LRPC): vertical at the natural (or non-accelerating inflation) rate of unemployment (NRU), indicating inflation does not affect the long-run unemployment rate.

2) Step-by-step reasoning
- Start with a short-run Phillips curve: π = πe - α(u - u*) where π is actual inflation, πe expected inflation, u unemployment, u* natural rate, and α>0.
- In the short run, if πe is fixed, reducing u below u* raises π (tradeoff).
- Over time, agents update πe to match π. If policymakers try to keep u < u*, expectations rise, shifting the short-run Phillips curve upward.
- The only sustainable unemployment rate when expectations adjust is u = u*; attempts to keep unemployment below u* lead to ever-accelerating inflation.
- Therefore the long-run relation between inflation and unemployment is independent of inflation level — the LRPC is vertical.

3) Intermediate logical steps (no numeric calculation required)
- Given π = πe - α(u - u*), set u ≠ u* temporarily → π ≠ πe.
- As time → long run, πe → π, forcing u → u*.

4) Why the correct answer is correct
- Because expectations adjust, inflation cannot permanently change unemployment; long-run unemployment equals the natural rate regardless of inflation.

5) Why other options are incorrect
- "Has a tradeoff between unemployment and potential inflation": misstates terms; potential inflation is not standard and implies a tradeoff that doesn’t exist long-run.
- "Has a tradeoff between unemployment and the natural rate of unemployment": nonsensical—tradeoff between a variable and its own natural rate is incorrect.
- "Has a tradeoff between unemployment and inflation": true only in the short run, not in the long run.

Conclusion: The correct choice is "has no tradeoff between unemployment and inflation," which matches the provided answer.

In the long run, the Phillips curve ________.Single choice

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