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    Question

    A vertical Phillips Curve in the long run implies

    that:
    A There is a permanent trade-off between inflation and unemployment. Correct Answer Incorrect Answer
    B Expansionary monetary policy can permanently reduce unemployment. Correct Answer Incorrect Answer
    C The natural rate of unemployment is independent of the inflation rate. Correct Answer Incorrect Answer
    D Deflation is necessary to achieve full employment. Correct Answer Incorrect Answer
    E Unemployment is always zero. Correct Answer Incorrect Answer

    Solution

    The long-run Phillips Curve (LRPC) is vertical at the Non-Accelerating Inflation Rate of Unemployment (NAIRU) or the natural rate. This signifies that in the long run, after expectations adjust, there is no trade-off between inflation and unemployment. The economy returns to its natural rate regardless of the inflation rate.

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