Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
There is a stable trade-off between inflation and unemployment.
B
There is no trade-off between inflation and unemployment.
C
Unemployment increases as inflation decreases.
D
Inflation decreases as unemployment decreases.
Understanding the Answer
Let's break down why this is correct
Answer
The Long Run Phillips Curve shows the relationship between unemployment and inflation in an economy over a longer period. Unlike the short run, where there might be a trade-off between inflation and unemployment, the Long Run Phillips Curve suggests that this trade-off does not exist. In the long run, the economy tends to settle at a natural rate of unemployment, which is not affected by inflation. For example, if inflation rises significantly, it might temporarily lower unemployment, but eventually, unemployment will return to its natural rate, regardless of the inflation rate. This means that in the long run, policies aimed at reducing unemployment by increasing inflation will not work as expected.
Detailed Explanation
The Long Run Phillips Curve shows that over time, there is no trade-off between inflation and unemployment. Other options are incorrect because Some people think there is a stable trade-off, meaning if one goes up, the other goes down; This option suggests that when inflation goes down, unemployment goes up.
Key Concepts
unemployment
Topic
Long Run Phillips Curve
Difficulty
easy level question
Cognitive Level
understand
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