The short-run tradeoff between the unemployment rate and the inflation rate shown by the Phillips curve is represented in the AS-AD model by
A) the vertical potential GDP line.
B) the upward-sloping aggregate supply curve.
C) rightward shifts of the aggregate supply curve.
D) leftward shifts of the aggregate supply curve.
E) the downward-sloping aggregate demand curve.

Question

Quizplus · Accepted Answer

The Phillips curve illustrates the short-run tradeoff between inflation and unemployment, suggesting that lower unemployment comes with higher inflation and vice versa. In the AS-AD (Aggregate Supply-Aggregate Demand) model, this relationship is represented by the upward-sloping aggregate supply curve. This curve reflects how, in the short run, increases in aggregate demand can lead to higher output and employment (lower unemployment) but also higher prices (inflation).

The Short-Run Tradeoff Between the Unemployment Rate and the Inflation