The Long Run Phillips Curve: Analysis and Explanation

The video explores the long run Phillips Curve, emphasizing its vertical nature at the natural unemployment rate. It explains the role of government policies, adaptive expectations, and money illusion in shaping this curve. The video highlights the importance of supply side policies for sustainable unemployment reduction and discusses the limitations of demand side policies. It concludes with an evaluation of theoretical implications and the necessity of understanding these concepts for economic analysis.

What are the two key concepts important for understanding the formation of the long run Phillips Curve?

• Money illusion and adaptive expectations

• Inflation and deflation

• Fiscal policy and monetary policy

• Supply and demand

Why is the long run Phillips Curve considered vertical?

• Due to the government's fiscal policies

• Because of the constant rate of inflation

• Due to the natural rate of unemployment being constant

• Because inflation and unemployment are directly proportional

What happens to unemployment and inflation when the government stimulates aggregate demand?

• Unemployment rises, inflation falls

• Both unemployment and inflation fall

• Both unemployment and inflation rise

• Unemployment falls, inflation rises

What is the role of money illusion in the labor market?

• It leads to a misinterpretation of real wage rates

• It stabilizes the economy

• It causes workers to demand higher wages

• It results in lower employment levels

How do adaptive expectations affect inflation in the long run?

• They stabilize inflation rates

• They cause inflation to decrease

• They lock in inflation rates based on past experiences

• They have no effect on inflation

What is the impact of repeated demand-side policies on inflation?

• They increase inflation over successive cycles

• They have no impact on inflation

• They reduce inflation

• They stabilize inflation

What is required for sustainable reductions in unemployment according to the video?

• More demand-side policies

• Increased government spending

• Supply-side policy changes

• Higher taxes

What does a long run aggregate supply shift achieve?

• An outward shift in the long run Phillips Curve

• A reduction in inflation

• An increase in unemployment

• An inward shift in the long run Phillips Curve

What could happen if economic agents form rational expectations instead of adaptive expectations?

• The theory of the Phillips Curve becomes more robust

• Inflation rates become unpredictable

• The short run and long run distinction becomes blurred

• The short run and long run distinction becomes clearer

What is the main reason for the formation of a vertical long run Phillips Curve?

• Constant government intervention

• Adaptive expectations and money illusion

• Stable inflation rates

• High employment levels