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.

Question

Quizplus · Accepted Answer

The Phillips curve illustrates the inverse relationship between the unemployment rate and the inflation rate. As the unemployment rate decreases, the demand for labor increases, which leads to higher wages and higher production costs. As a result, firms increase their prices to maintain their profits, leading to a higher inflation rate. Similarly, as the unemployment rate increases, the demand for labor decreases, leading to lower wages and lower production costs. This leads to lower inflation rates. Therefore, there is a trade-off between unemployment and inflation.

The Phillips Curve Illustrates the