The Phillips curve describes the relationship between which two variables?
A)aggregate expenditure and aggregate demand
B)the money supply and interest rates
C)unemployment and the rate of change of wages
D)inflation and interest rates
E)the output gap and potential GDP

Question

Quizplus · Accepted Answer

The Phillips curve describes the inverse relationship between unemployment and the rate of change of wages. It also describes the tradeoff between inflation and unemployment, suggesting that as unemployment decreases, inflation increases and vice versa, meaning there is a relationship between inflation and interest rates. Therefore, option C and D are the correct answer choices. Option A and B are incorrect because the Phillips curve does not describe the relationship between these variables. Option E is incorrect because it refers to concepts that are related to the Phillips curve but not included in its description.

The Phillips Curve Describes the Relationship Between Which Two Variables