Phillips curves show the relationship between the
A) real interest rate and the unemployment rate.
B) unemployment rate and the inflation rate.
C) expected rate of inflation and the nominal interest rate.
D) nominal interest rate and the real interest rate.

Question

Quizplus · Accepted Answer

Phillips curves show the negative relationship between the unemployment rate and the inflation rate. As unemployment falls, the labor market tightens and firms must raise wages to attract workers, leading to higher production costs and higher prices. Thus, a lower unemployment rate is associated with a higher rate of inflation according to the Phillips curve.

Phillips Curves Show the Relationship Between the