The typical relationship between inflation and unemployment is
A) as unemployment falls, inflation falls.
B) as unemployment falls, inflation increases.
C) as unemployment falls, nothing happens to inflation.
D) unemployment changes do not directly lead to changes in inflation, but inflation changes may cause changes in unemployment.

Question

Quizplus · Accepted Answer

The typical relationship between inflation and unemployment is that as unemployment falls, inflation increases. This is often referred to as the Phillips Curve, which shows an inverse relationship between the two variables. As the labor market tightens and there are fewer unemployed workers, firms may have to compete more for workers, driving up wages and costs which can then be passed on to consumers as higher prices, leading to inflation.

The Typical Relationship Between Inflation and Unemployment Is