Along a Phillips curve:
A) consumption depends on prices.
B) the inflation rate varies inversely with the unemployment rate.
C) the inflation rate varies directly with the unemployment rate.
D) prices and tax rates are directly related.

Question

Quizplus · Accepted Answer

The Phillips curve shows the inverse relationship between inflation and unemployment. As unemployment decreases, the labor market tightens and workers have more bargaining power to demand higher wages, leading to an increase in inflation. Conversely, as unemployment increases, inflation decreases as there is less competition for jobs and workers are willing to accept lower wages. Therefore, choice B is correct.

Along a Phillips Curve