Along a short-run Phillips curve, a higher rate of inflation is associated with a lower unemployment rate.

Question

Quizplus · Accepted Answer

This is the typical relationship represented by the short-run Phillips curve. As inflation increases, firms may increase production and hire more workers, leading to a lower unemployment rate. The inverse relationship between inflation and unemployment is known as the Phillips curve. However, in the long run, the Phillips curve is vertical and there is no trade-off between inflation and unemployment.

Along a Short-Run Phillips Curve, a Higher Rate of Inflation