Chapter 34, Problem 1MCQ

To determine

The correct option for the long-run Philips curve.

Answer to Problem 1MCQ

From the available options, the correct option is none of the above.

Explanation of Solution

In the long run, there would not be a trade-off between unemployment and inflation because unemployment returns, in the long run, would remain stable to the natural rate but the inflation rate would reach its higher level. It occurs because there is a supply shock in the market and any changes in the factors such as inflationary expectations and supply shocks would directly affect the Philips curve. In this case, the Philips curve would remain vertical as there is no long-run relationship or trade-off between inflation and unemployment rate in the economy. Therefore, in the long run, this curve would not be horizontal, negatively sloped, equal to the short-run Philips curve, and expected inflation as it is vertical.

Here, the correct option is e (none of the above).

Economics Concept Introduction

Introduction: Inflation means there is an increase in the price of goods and services in the economy which affects the consumption level of the people in the country. When there is a temporary reduction in price inflation, this is disinflation in the economy. And, the Philips curve represents the inflation and unemployment relationship at different rates in the economy.