The assumption that wages adjust more slowly than prices implies that the Phillips Curve
A) exists in the short-run.
B) exists in the long-run.
C) is vertical.
D) does not exist.

Question

Quizplus · Accepted Answer

The assumption that wages adjust more slowly than prices implies that the Phillips Curve exists in the short-run. This is because in the short-run, prices can adjust more quickly than wages, leading to a trade-off between inflation and unemployment. However, in the long-run, wages and prices adjust fully, and the Phillips Curve becomes vertical, indicating that there is no relationship between inflation and unemployment.

The Assumption That Wages Adjust More Slowly Than Prices Implies