Monetarist Critique of the Phillips Curve

The original Phillips curve suggested a stable, inverse relationship between the rate of unemployment and the rate of inflation. This implied policymakers could choose a point on the curve to trade lower unemployment for higher inflation, or vice versa.

Monetarists' Viewpoint

Monetarists, notably Milton Friedman and Edmund Phelps, challenged this stable trade-off. They argued that the inverse relationship only held in the short run and depended crucially on inflation expectations.

• Expectations: When inflation is unexpectedly high, unemployment may temporarily fall. However, workers and firms will eventually adjust their inflation expectations upwards.
• Natural Rate of Unemployment: Monetarists proposed the concept of a "natural rate of unemployment" (the rate consistent with stable inflation). Attempts to keep unemployment below this natural rate through demand stimulus would only lead to accelerating inflation, not permanently lower unemployment.
• Long-Run Curve: In the long run, the Phillips curve is vertical at the natural rate of unemployment. This means there is no stable trade-off between inflation and unemployment.

Analysis of Assertion and Reason

Assertion (A): Monetarists disagreed with the Phillips curve analysis. This is true because they rejected the idea of a stable, exploitable trade-off.

Reason (R): There are no unique correspondence of % inflation rate with % unemployment rate. This is also true, as explained by the role of expectations and the concept of the natural rate of unemployment, which prevents a fixed trade-off.

Reason (R) accurately explains why Monetarists disagreed with the original Phillips curve analysis (Assertion A). The lack of a unique, stable correspondence is the core reason for their critique.

Conclusion

Both Assertion (A) and Reason (R) are true, and Reason (R) provides the correct explanation for Assertion (A).