Phillips developed a curve that shows the trade-off between the
A)Full employment rate and interest rates.
B)Unemployment rate and inflation rates.
C)Full employment rate and the natural rate of unemployment.

Question

Quizplus · Accepted Answer

The Phillips curve shows the inverse relationship between unemployment rate and inflation rate. As unemployment decreases, there is upward pressure on wages, which leads to higher costs for firms, and ultimately higher prices for consumers (inflation). Therefore, there is a trade-off between lower unemployment and higher inflation, and vice versa. The curve was developed based on empirical observations of data from the United Kingdom, but has also been found to hold in other economies.

Phillips Developed a Curve That Shows the Trade-Off Between the