Question : The long-run Phillips curve is:
Option 1: Vertical
Option 2: Horizontal
Option 3: Upward-sloping
Option 4: Downward-sloping
Correct Answer:
Vertical
Solution : The correct answer is (a) vertical.
The long-run Phillips curve is based on the concept of the natural rate of unemployment, which represents the unemployment rate at which there is no cyclical unemployment and the economy is operating at its potential level of output. In the long run, changes in the rate of inflation are not expected to have a sustained impact on the unemployment rate.
The vertical shape of the long-run Phillips curve suggests that there is no permanent trade-off between inflation and unemployment in the long run. Regardless of the level of inflation, the economy will tend to settle at its natural rate of unemployment.
