Robert Lucas and Thomas Sargent argued that a.) there might not be a trade-off b

Question

Robert Lucas and Thomas Sargent argued that

a.) there might not be a trade-off between unemployment and inflation in the short run, and the short-run Phillipns curve would be vertical.

b.) there would always be a trade-off between unemployment and inflation in both the short run, and the long-run and the Phillips curve in both the short and long run would be downward sloping.

c.) there would always be a direct relationship between unemployment and inflation in the short run, and the short run Phillips curve would be upward rising

d.) there would always be a trade-off between unemployment and inflation in the short run, and the short-run phillips curve would be downward sloping.

Explanation / Answer

Ans: a.) there might not be a trade-off between unemployment and inflation in the short run, and the short-run Phillipns curve would be vertical.

Explanation: The logic of Lucas and Sargent’s argument is that the Phillips curve is vertical, even in the short run. With a vertical short-run Phillips curve, expansionary monetary policy cannot reduce the unemployment rate below the natural rate of unemployment.

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