The theory behind the long-run Phillips curve relationship is that:
A) people's expectations of future inflation are based on their most recent experience.
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

In the long run, prices and wages are flexible, meaning that any short-term trade-off between inflation and unemployment disappears, resulting in no long-term relationship between the two.

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