The vertical long-run Phillips curve
A) indicates the permanent unemployment rate
B) indicates the unemployment rate at the optimal level of GDP
C) is only one of several vertical curves that together are called interest rate targets
D) indicates the economy's natural rate of unemployment
E) is more socially desirable than a horizontal Phillips curve would be

Question

Quizplus · Accepted Answer

The vertical long-run Phillips curve indicates the economy's natural rate of unemployment, which is the unemployment rate that exists when the economy is at its potential output in the long run. This is because in the long run, inflation (as measured by the change in the price level) is only affected by changes in the money supply and not by changes in the unemployment rate. Therefore, the vertical long-run Phillips curve indicates a situation in which there is no trade-off between inflation and unemployment.

The Vertical Long-Run Phillips Curve