The short- run Phillips curve shows
A) an inverse relationship between interest rates and the price level.
B) a direct relationship between the price level and real GDP.
C) an inverse relationship between the unemployment rate and the inflation rate.
D) a direct relationship between the quantity of money and interest rates.

Question

Quizplus · Accepted Answer

The short-run Phillips curve shows an inverse relationship between the unemployment rate and the inflation rate. As the unemployment rate decreases, there is upward pressure on wages, which leads to firms increasing the prices of their goods and services, causing inflation. Thus, there is a negative relationship between unemployment and inflation.

The Short- Run Phillips Curve Shows