The theory behind the long-run Phillips curve relationship is that
A) people's expectations of future inflation are based on their most recent experiences.
B) people form expectations on the basis of all available information.
C) monetary policy has real effects in the long run.
D) inflation stimulates the economy,and this outcome reduces the unemployment rate.
E) prices are flexible in the long run,causing no relationship between unemployment and inflation.

Question

Quizplus · Accepted Answer

The long-run Phillips curve relationship is based on the idea that prices are flexible in the long run, meaning that there is no relationship between unemployment and inflation. In other words, in the long run, changes in the unemployment rate do not have an impact on the inflation rate. This is because, over time, prices and wages will adjust to changes in supply and demand, leading to a natural rate of unemployment and a stable inflation rate.

The Theory Behind the Long-Run Phillips Curve Relationship Is That