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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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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