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16 November, 03:20

Evaluate why the inflation-unemployment trade-off disappears in the long run.

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  1. 16 November, 03:58
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    Answer: In the long-run the economy is at the full employment level. This means that unemployment is also at its natural rate consistent with full employment level of output. Thus, the trade-off between inflation and unemployment disappears in the long-run and unemployment stays at its natural rate irrespective of the level of inflation in the economy.

    This situation is given by the vertical Phillips curve, which shows that when economy is in the long-run equilibrium, unemployment is fixed at its natural level at any level of inflation.
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