Asked by Marcell Randall on Jun 28, 2024
Verified
Explain the connection between the vertical long-run aggregate supply curve and the vertical long-run Phillips curve.
Long-Run Aggregate Supply
The total output of goods and services that an economy can produce when both labor and capital are fully employed, at full capacity.
Long-Run Phillips Curve
A macroeconomic concept that suggests there is no long-term trade-off between inflation and unemployment, implying that in the long run, the economy reaches a natural rate of unemployment regardless of inflation.
- Detail the relationship among the Phillips curve, inflation rate, and unemployment rate, with a focus on the concept of the natural rate of unemployment.
Verified Answer
ZK
Zybrea KnightJul 05, 2024
Final Answer :
Both reflect the classical dichotomy. The vertical long-run aggregate supply curve says that, in the long run, the economy will be at its natural rate of output, and that this is the same no matter what the price level. The natural rate of output depends on the natural rate of unemployment. The vertical Phillips curve says that, in the long run, the economy will be at the natural rate of unemployment (corresponding with the natural rate of output), and that this is the same no matter what the inflation rate. Both curves are consistent with the classical dichotomy that says real variables are not affected by nominal variables.
Learning Objectives
- Detail the relationship among the Phillips curve, inflation rate, and unemployment rate, with a focus on the concept of the natural rate of unemployment.