In responding to the Phillips curve hypothesis, what did Friedman argue that a central bank can peg?
A) the unemployment rate
B) the price level
C) the growth rate of real GDP
D) the real exchange rate

Question

Quizplus · Accepted Answer

Friedman argued that a central bank can peg the price level through monetary policy, but not the unemployment rate as suggested by the Phillips curve hypothesis. Friedman believed that the long-run Phillips curve is vertical, meaning there is no permanent trade-off between inflation and unemployment. Instead, he argued that any efforts to reduce unemployment in the short run through expansionary monetary policy will only result in higher inflation.

In Responding to the Phillips Curve Hypothesis, What Did Friedman