Learning Path
Question & Answer1
Understand Question2
Review Options3
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Explore TopicChoose the Best Answer
A
Inflation remains stable regardless of short-term unemployment fluctuations.
B
Higher unemployment will always lead to lower inflation.
C
Inflation will decrease as unemployment decreases.
D
There is a direct trade-off between inflation and unemployment at all times.
Understanding the Answer
Let's break down why this is correct
Answer
The Long Run Phillips Curve suggests that when an economy is at the natural rate of unemployment, there is no trade-off between inflation and unemployment. This means that in the long run, inflation will remain stable and not be influenced by changes in unemployment. For example, if the economy has a natural unemployment rate of 5%, it can expect a certain level of inflation, let’s say 2%, regardless of whether the unemployment rate is slightly above or below that level. In this situation, any attempts to lower unemployment below the natural rate would lead to higher inflation in the long run, but will not create lasting changes in employment. Therefore, the Long Run Phillips Curve indicates that inflation and unemployment are not directly related over a longer period.
Detailed Explanation
When an economy is at the natural rate of unemployment, inflation stays steady. Other options are incorrect because Some might think that higher unemployment always means lower inflation; This answer suggests that as fewer people are unemployed, prices will drop.
Key Concepts
Long Run Phillips Curve
Natural Rate of Unemployment
Inflation Stability
Topic
Long Run Phillips Curve
Difficulty
easy level question
Cognitive Level
understand
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