The short-run Phillips curve tradeoff becomes less favourable if either
A) potential GDP or the natural unemployment rate decreases.
B) potential GDP or the natural unemployment rate increases.
C) the expected inflation rate increases or the natural unemployment rate decreases.
D) the level of real GDP decreases or the natural unemployment rate decreases.
E) the expected inflation rate or the natural unemployment rate increases.

Question

Quizplus · Accepted Answer

An increase in the expected inflation rate or the natural unemployment rate makes the tradeoff between inflation and unemployment less favorable, as it shifts the short-run Phillips curve upwards, leading to higher inflation for any given level of unemployment.

The Short-Run Phillips Curve Tradeoff Becomes Less Favourable If Either