The Friedman-Phelps hypothesis claimed that the apparent trade-off between unemployment and inflation would NOT survive an extended period of:
A) rising unemployment.
B) rising prices.
C) rising interest rates.
D) increases in the money supply.

Question

Quizplus · Accepted Answer

The Friedman-Phelps hypothesis posited that the trade-off between unemployment and inflation, as suggested by the Phillips curve, would not hold in the long run, especially in the face of continuously rising prices. They argued that once people adjusted their expectations about inflation, the temporary decrease in unemployment would disappear, leading to higher inflation without the benefit of lower unemployment.

The Friedman-Phelps Hypothesis Claimed That the Apparent Trade-Off Between Unemployment