How does the short-run Phillips curve differ from the long-run Phillips curve?

• A. In the short run, there is a trade-off between inflation and unemployment; in the long run, the Phillips curve is vertical at the natural rate.
• B. In the short run, unemployment equals inflation; in the long run, there is a trade-off.
• C. The short-run Phillips curve is vertical; the long-run is downward sloping.
• D. There is no relationship between inflation and unemployment in either horizon.

Answer: (A)

In the short run, there is a trade-off between inflation and unemployment because wages and prices don’t adjust instantly. When demand rises, output and employment can fall, but this stronger demand also pushes up prices. With prices rising and expectations not fully adjusted yet, unemployment can be lower while inflation is higher. That's the downward-sloping short-run Phillips curve: you can move to lower unemployment by accepting higher inflation, at least temporarily.

In the long run, however, people adjust their expectations and wages catch up. Once inflation expectations align with actual inflation, there’s no lasting trade-off: unemployment tends to return to the natural rate regardless of the inflation rate. The long-run Phillips curve is vertical at the natural rate of unemployment, meaning inflation does not systematically reduce unemployment in the long run.

So the correct description is that the short run shows a trade-off between inflation and unemployment, while the long run has a vertical curve at the natural rate. The other statements mix up how unemployment and inflation relate in each horizon.