The short-run Phillips curve tells policy makers that if inflation is currently 6 percent and unemployment is 4 percent, measures to reduce the inflation rate to 4 percent will most likely lead to an unemployment rate of:
A)0 percent.
B)2 percent.
C)4 percent.
D)6 percent.

Question

Quizplus · Accepted Answer

The short-run Phillips curve suggests a trade-off between inflation and unemployment, implying that reducing inflation often results in higher unemployment. Therefore, lowering inflation from 6% to 4% would likely increase the unemployment rate, with option D (6 percent) being a plausible outcome according to this theory.

The Short-Run Phillips Curve Tells Policy Makers That If Inflation