So factors that would affect NAIURU would also affect the long run Phillips curve. The original curve would then apply only to brief, transitional periods and would shift with any persistent change in the average rate of inflation. In the long run, however, permanent unemployment – inflation trade off is not possible because in the long run Phillips curve is vertical. Unit 5: Long-Run Consequences of Stabilization Policies 5.2: The Phillips Curve. But because the Phillips curve is vertical, the rate of unemployment is the same at these two points. Since in the short run AS curve (Phillips Curve) is quite flat, therefore, a trade off between unemployment and inflation rate is possible. In the classical model, L and the real wage are determined from equilibrium conditions in the labor market. The long-run Phillips curve is therefore vertical. The long-run Phillips curve could be shown on Figure 1 as a vertical line above the natural rate. The Phillips curve is a graph that shows how inflation rates and unemployment rates are related to each other, both in the short-run and long-run. It is generally but not universally accepted that the long run Phillips curve is vertical at the natural rate of unemployment. B) prices are flexible in the long run, causing no relationship between unemployment and inflation. • The long-run Phillips curve (LPC). It is actually just a reflection of the AD/AS graph. The Phillips curve illustrates the relationship between the rate of inflation and the unemployment rate. Thus, the vertical long-run aggregate supply curve and the vertical long-run Phillips curve both imply that monetary policy influences nominal variables (the price level and the inflation rate) but not real variables (output and unemployment). The difference between short-run and long-run phillips curve with the help of an aggregate supply and demand diagram. Lesson Summary. MECHANICS BEHIND LONG RUN PHILLIPS CURVE. The Long-Run Phillips Curve. The long run Phillips curve is a vertical line at the natural rate of unemployment, so inflation and unemployment are unrelated in the long run. b) there is a trade-off between unemployment and inflation. The long-run Phillips curve is vertical, suggesting that there is no tradeoff between unemployment and inflation. c) lower unemployment can be sustained indefinitely with continuous expansionary policies. The long-run Phillips curve shows that: a) the natural rate of unemployment occurs when the actual inflation rate equals the expected inflation rate. The theory behind the long-run Phillips curve relationship is that. C) inflation stimulates the economy, and this outcome reduces the unemployment rate. The classical model and the long-term Phillips curve. nw = nM, U = UN and there is no relationship between nw and U (UN is the natural rate of unemployment). 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