Along an actual (observed) Phillips curve,
A) aggregate output varies inversely with the unemployment rate.
B) aggregate output directly inversely with the inflation rate.
C) the inflation rate varies inversely with the unemployment rate.
D) the inflation rate varies directly with the unemployment rate.

Question

Quizplus · Accepted Answer

Along an actual Phillips curve, the inflation rate varies inversely with the unemployment rate. As unemployment decreases, the demand for goods and services increases leading to an increase in prices. As a result, the inflation rate increases. On the other hand, as unemployment increases, the demand for goods and services decreases leading to a decrease in prices. As a result, the inflation rate decreases.

Along an Actual (Observed) Phillips Curve