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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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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