Phillips curve

[Arushi]

 According to the monetarists, in the long-run, the Phillips Curve is:
a.  vertical
b.  horizontal              
c.  downward-sloping
d.  upward-sloping

[The Villain]

The ans is vertical..

[Arushi]

Could you also explain the logic behind the answer? Phillips curve gives the relationship between change in the inflation rate and unemployment rate? if it is vertical in the long run means- for a particular level of unemployment- the inflation rate can vary across any range. Why and how does this happen?

[The Villain]

This is beacz decrease in unemployment can lead to increase in inflation but only in tge SR.In LR inflation and unemployment are unrelated.

[Arushi]

That helps. thanks :)

[Homer Simpson]

monetarists believe that "in the end, only money matters" - only money can affect prices in the long run. Real variables like unemployment, gdp, interest rates will not change and stay at their natural rates. In that sense, U = Un in long run for whatever levels of inflation which means vertical phillips curve.

[Arushi]

@tsuki- okay, thanks :)