If input price prices adjusted very rapidly to output prices as classical economists argue the Philips curve would be ?
Correct answer: A. Vertical or nearly vertical
- A. Vertical or nearly vertical
- B. upward sloping
- C. downward sloping
- D. horizontal or nearly horizontal
Explanation
If input prices adjust rapidly to output prices, firms’ real costs and output do not change much when prices change, making aggregate supply effectively vertical. This produces a vertical long-run Phillips curve with no lasting inflation-unemployment trade-off.
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