Which of the following statements is true of the U.S. experience with regards to the Phillips curve hypothesis?
I. Annual observations of inflation and unemployment from 1961 to 2008 seem consistent with a Phillips curve.
II. A Phillips curve relationship best fits observations of inflation and unemployment in the 1960s.
III. The Phillips curve relationship in the inflation and unemployment data began to disintegrate in the 1970s.
A) I only
B) II only
C) III only
D) II and III only

Question

Quizplus · Accepted Answer

Statement II is true as the original Phillips curve was proposed based on data from the 1960s. However, Statement III is also true as in the 1970s, there was a significant breakdown in the Phillips curve relationship due to factors such as oil price shocks and changes in inflation expectations. Statement I is not completely true as while some periods of the data seem to follow a Phillips curve relationship, there is also significant variation and deviation from this pattern in other periods.

Which of the Following Statements Is True of the U