The Phillips Curve is based on the idea that with a constant short-run aggregate supply curve, a greater increase in aggregate demand is associated with a:
A)smaller increase in price level.
B)smaller increase in nominal wage rates.
C)greater increase in the unemployment rate.
D)greater increase in the rate of inflation.

Question

Quizplus · Accepted Answer

The Phillips Curve suggests that there is a negative relationship between inflation and unemployment in the short run. As aggregate demand increases, firms may hire more workers to meet the increased demand, leading to a lower unemployment rate. However, as the labor market tightens, workers may negotiate for higher wages, which leads to higher costs for firms and therefore higher prices. This means that a greater increase in aggregate demand will be associated with a greater increase in the rate of inflation.

The Phillips Curve Is Based on the Idea That with a Constant