Why is there no long-run trade-off between unemployment and inflation?
What will be an ideal response?
ANSWER
Because when the labor market is so tight as to cause wages and prices to rise, the resulting inflation intensifies the pressure on wages and prices (by reducing the real wage and increasing expected inflation). Since the inflation in no way “balances” or “compensates” for the low level of unemployment, the condition of “too low” unemployment is unsustainable in the long run.
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