If employees and employers always accurately forecast inflation, what is the shape of the Phillips curve?
A)It is vertical in the short run, and upward sloping in the long run.
B)It is downward sloping in the short run, and vertical in the long run.
C)It is upward sloping in the short run, and horizontal in the long run.
D)It is vertical in the short run and long run.

Question

If employees and employers always accurately forecast inflation, what is the shape of the Phillips curve?
A)​It is vertical in the short run, and upward sloping in the long run.
B)​It is downward sloping in the short run, and vertical in the long run.
C)​It is upward sloping in the short run, and horizontal in the long run.
D)​It is vertical in the short run and long run.

Quizplus · Accepted Answer

If employees and employers always accurately forecast inflation, there would be no trade-off between inflation and unemployment, and the Phillips curve would be vertical in both the short and long run. This is because actual inflation would always equal expected inflation, so any attempts to lower unemployment through expansionary policies would only result in higher expected inflation and no real change in unemployment.

If Employees and Employers Always Accurately Forecast Inflation, What Is