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Under what circumstances would the long run and the short run Phillips curves be the same?...

Under what circumstances would the long run and the short run Phillips curves be the same? a) If firms and households had adaptive expectations. b) If firms and households had rational expectations. c) If firms and households had no expectations d) If firms and households failed to accurately predict the inflation

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Answer #1

Answer : The answer is option c.

If firms and households has zero expectations then firms will not change their production level and consumers will not change their consumption level. As a result, aggregate demand and aggregate supply will not change. Due to existing same production level the employment level will not change hence unemployment will remain same. Due to existing same production and consumption level the price level will not change hence inflation will remain same. As inflation and unemployment will not change hence the short run and long run Philips curves will remain same. Hence except option c other options are not correct. Therefore, option c is the correct answer.

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