Consider the U.S. data for inflation and the unemployment rate for the last four decades. Which of the following statements describes the relationship between the two variables?
A) Several different short- run Phillips curves representing different natural unemployment rates and different expected inflation rates existed.
B) There is a positive relationship.
C) The natural unemployment rate did not change but the expected inflation rate did change over these years.
D) None of the above answers is correct.

Question

Quizplus · Accepted Answer

The relationship between inflation and unemployment in the U.S. over the last four decades can be best described as several different short-run Phillips curves representing different natural unemployment rates and different expected inflation rates existing at different points in time. This is because the Phillips Curve, which shows the inverse relationship between inflation and unemployment, has shifted over time due to changes in the natural rate of unemployment and expected inflation. This means that the relationship between the two variables has not been consistent and can vary over time.