In the early 1970s, President Nixon inherited an economy that was operating with an inflationary gap. As suggested by the Phillips curve hypothesis, policy makers instituted a combination of contractionary fiscal and monetary policies to eliminate the output gap. Which of the following occurred as a result?

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Quizplus · Accepted Answer

Despite the expected outcome suggested by the Phillips curve hypothesis, the policies resulted in an increase in unemployment with little change in inflation. This phenomenon came to be known as the "Phillips curve tradeoff breakdown" and was a result of various factors, including increased global competition and supply-side shocks.

In the Early 1970s, President Nixon Inherited an Economy That