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

Question

Quizplus · Accepted Answer

The short-run Phillips curve shows the negative relationship between the unemployment rate and the inflation rate. As unemployment decreases, there is increased competition for workers, and wages increase. This leads to higher production costs, causing firms to raise prices, resulting in an increase in inflation. The short-run Phillips curve, therefore, depicts the tradeoff between inflation and unemployment in the short run.

The Short-Run Phillips Curve Shows a