In the Self-Correction and the Long-Run Phillips Curve, at Point

Multiple Choice

In the self-correction and the long-run Phillips curve, at point b actual inflation (4%) is above expected inflation (0%) . Then inflation expectations will start to rise, and the Phillips curve will shift upward, moving the economy to point c. According to the natural rate hypothesis, there is _____ between inflation and unemployment, and thus the long-run Phillips curve is _____.

A) no permanent trade off; a vertical line
B) permanent trade off; a vertical line
C) no permanent trade off; undetermined
D) permanent trade off; undetermined