Question

In the long run:
a. there is an inflation-unemployment trade-off and the terms of that trade-off have worsened in recent years.
b. there is no inflation-unemployment trade-off.
c. attempts to "fine-tune" the economy cause the rate of unemployment to accelerate.
d. there is an inflation-unemployment trade-off, but the terms of that trade-off have improved in recent years.

Answer 1

Answer: Option (b) is correct.

Explanation:

According to the economists, there will be no trade-off between the inflation and the unemployment in the long run.

We all know that Philips curve represents the inverse relationship between the inflation and unemployment in the short run.

The vertical line at the natural rate of unemployment in the Philips diagram represents the long run Philips curve. This curve shows that there is no relationship between inflation and unemployment.