The Long-Run Phillips Curve

The Long-Run Phillips Curve

To understand Friedman’s argument, recall that the level of real GDP in the long run is also referred to as potential GDP, at which firms will operate at their normal level of capacity and everyone who wants a job will have one, except the structurally and frictionally unemployed.

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Friedman concluded that the long-run aggregate supply curve is a vertical line at potential real GDP, and the long-run Phillips curve is a vertical line at the natural rate of unemployment.

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