Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It shows a stable trade-off between inflation and unemployment.
B
It indicates that there is no trade-off between inflation and unemployment in the long run.
C
It suggests that monetary policy can permanently reduce unemployment.
D
It reveals that increasing inflation will always lead to lower unemployment.
Understanding the Answer
Let's break down why this is correct
Answer
The Long Run Phillips Curve shows that in the long term, there is no trade-off between inflation and unemployment. This means that trying to keep unemployment low by increasing inflation will not work in the long run. Instead, people eventually adjust their expectations, and the economy returns to a natural level of unemployment, which is not influenced by inflation rates. For example, if a government prints more money to boost the economy, it may temporarily lower unemployment, but over time, prices will rise, and unemployment will settle back to its original level. Therefore, effective monetary policy should focus on maintaining stable prices rather than trying to manipulate unemployment through inflation.
Detailed Explanation
The Long Run Phillips Curve shows that in the long run, inflation and unemployment do not have a trade-off. Other options are incorrect because Some people think there is a steady trade-off between inflation and unemployment; It's a common belief that monetary policy can keep unemployment low forever.
Key Concepts
monetary policy
trade-off
Topic
Long Run Phillips Curve
Difficulty
medium level question
Cognitive Level
understand
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