If, in the long run, people adjust their price expectations so that all prices and incomes move proportionately to an increase in the price level then the long-run Phillips curve ?
Correct answer: A. is vertical
- A. is vertical
- B. is negatively sloped
- C. has a slope that is determined by how fast people adjust their price expectations
- D. is positively sloped
Explanation
Once people fully adjust their expectations, inflation no longer keeps unemployment away from its natural rate. The long-run Phillips curve is therefore vertical at the natural rate of unemployment.
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