Answer to Question #249387 in Macroeconomics for John

Question

The trade off between inflation and unemployment:

i. Is depicted by the long-run Phillips curve
ii. Is consistent with the theory of money neutrality
iii. Shows the possible effects of monetary policy in the short run.

A. Only ii is correct
B. Only iii is correct
C. i and iii are Correct
D. ii and iii are correct

Answer 1

B. Only iii is correct.

The trade off between inflation and unemployment is emphasized in models in which money is not neutral in the short run and hence monetary policy can have possible effects in the short run.