In 1968,Friedman and Phelps predicted that high inflation
A) would not always deliver low unemployment.
B) is inversely related to low unemployment.
C) is directly correlated with low unemployment.
D) guarantees low unemployment.
E) and low unemployment are mutually exclusive.

Question

Quizplus · Accepted Answer

Friedman and Phelps proposed the concept of the natural rate of unemployment, which suggests that there is a long-run trade-off between inflation and unemployment. They argued that in the short run, there is a negative relationship between inflation and unemployment, but in the long run, inflation expectations adjust, and the economy returns to the natural rate of unemployment regardless of the level of inflation. Therefore, high inflation does not guarantee low unemployment, and the correct answer is A.

In 1968,Friedman and Phelps Predicted That High Inflation