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Difficult

Phillips Lucas

MACRO-4KEKL7

Assume the economy is originally at the natural rate of unemployment of 5% and the current inflation rate is 3%. Also assume that all agents in the economy have full information and act rationally.

According to the Phillips curve if the monetary authority attempts to stimulate the economy, in the short run inflation will

and unemployment will

. In the long run, inflation will

and unemployment will

.