Question

​If, in the long​ run, real GDP returns to its potential​ level, then in the long​ run, A. the Phillips curve represents a structural relationship. B. the Phillips curve is upward sloping. C. the Phillips curve is vertical. D. the Phillips curve disappears.

Answer 1

Answer:

C. the Phillips curve is vertical

Explanation:

Philips Curve shows the inverse relationship between inflation rate & unemployment level. High inflation rate implies low unemployment rate; and low inflation rate implies high inflation rates. Economic growth (output rise) leads to inflation & reduces unemployment ; Economic slowdown (output fall) leads to deflation & increases  unemployment.  

However; In long run, real GDP (output level) returns to its potential​ level. So; output level defining the inverse relationship (trade off) between inflation rate & unemployment level, is stable. Hence, inflation rate & unemployment level have no inverse (trade off) relationship & they are unrelated. Therefore, the long run Phillips curve is vertical.  

Answer 2

Answer:

C. the Phillips curve is vertical

Explanation:

• The potential GDP is expressed as the level of the production of the goods and the services that the economy is capable of producing and part of its workforce is fully e played and the capital stocks are fully used and the real GDP is the output of the goods and services.

• The shift in the curve as a way to show the newly chosen inflation and natural rates of the unemployment, thus in long run the curve becomes vertical due to the no trade-offs between the inflation and unemployment.