Question

Which of the following statements would be true if the short-run Phillips curve relationship held in the long run?

	a.	Only monetary policy, not fiscal policy, has any real effects on the economy.
	b.	A central bank can always steer an economy out of recession, simply through creating inflation.
	c.	Expansionary monetary policy can decrease inflation at the expense of unemployment.
	d.	A central bank has no control over unemployment.
	e.	Prices fully adjust in the long run.

Answer 1

Correct option: (A) Only Monetary policy, not fiscal policy has any real effects on the economy

Reason;: If the short run philips curve tradeoff between Inflation and unemployment exists even in the long run, it means ony monetary and not fiscal policy will have real impact on the economy