The traditional short-run Phillips curve implies that
A) a central bank has no impact on the unemployment rate.
B) a central bank has no impact on inflation.
C) a central bank can choose higher or lower unemployment rates simply by adjusting the rate of inflation in an economy.
D) prices are completely flexible.
E) unemployment and inflation are unrelated.

Question

Quizplus · Accepted Answer

The traditional short-run Phillips curve shows a trade-off between unemployment and inflation, meaning that a central bank can choose higher or lower unemployment rates by adjusting the rate of inflation in an economy. However, this trade-off is only applicable in the short-run and becomes less effective in the long run.

The Traditional Short-Run Phillips Curve Implies That