Refer to the above diagram for a specific economy.Which of the following best describes the relationship shown by this curve?
A)The demand for labor is large when the rate of inflation is small.
B)When the rate of unemployment is high, the rate of inflation is high.
C)The rate of inflation and the rate of unemployment are inversely related.
D)The rate of inflation and the rate of unemployment are directly related.

Question

Refer to the above diagram for a specific economy.Which of the following best describes the relationship shown by this curve?
A)The demand for labor is large when the rate of inflation is small. 
B)When the rate of unemployment is high, the rate of inflation is high. 
C)The rate of inflation and the rate of unemployment are inversely related. 
D)The rate of inflation and the rate of unemployment are directly related.

Quizplus · Accepted Answer

The curve shows an inverse relationship between the rate of inflation and the rate of unemployment. This is known as the Phillips Curve, which suggests that as unemployment decreases, inflation increases, and as unemployment increases, inflation decreases. Therefore, option C is the best description of the relationship shown by the curve.

Refer to the Above Diagram for a Specific Economy