Which statement is true about the long-run Phillips curve?

• A. It is vertical at the NAIRU
• B. It slopes downward
• C. It is upward sloping
• D. It is horizontal at zero inflation

Answer: (A)

In the long run, unemployment is determined by the economy’s natural rate (the NAIRU) and inflation expectations have fully adjusted. This means inflation no longer affects real unemployment, so the long-run Phillips curve is a vertical line at the NAIRU. The other shapes describe short-run dynamics: a downward slope happens due to misperceptions and sticky wages before expectations catch up; an upward slope would imply higher inflation raises unemployment, which isn’t supported in the long run; and a horizontal line at zero inflation would inappropriately tie unemployment to a specific inflation rate rather than to the natural rate.