The Phillips curve illustrates the
A)Inverse relationship between the unemployment rate and the inflation rate.
B)Direct relationship between the unemployment rate and the inflation rate.
C)Inverse relationship between the price level and the level of output.
D)Direct relationship between the price level and the level of output.

Question

Quizplus · Accepted Answer

The Phillips curve shows an inverse relationship between the unemployment rate and the inflation rate. As unemployment decreases, there is more competition for workers, leading to higher wages and higher costs for businesses, which can lead to inflationary pressures. As unemployment increases, there is less competition for workers, leading to lower wages and lower costs for businesses, which can lead to deflationary pressures. This trade-off between unemployment and inflation is the basis of the Phillips curve.

The Phillips Curve Illustrates the