If fluctuations in economic activity emanate from the supply side, higher rates of inflation will be associated with higher rates of unemployment, and lower rates of inflation will be associated with lower rates of unemployment.

Question

Quizplus · Accepted Answer

This statement reflects the traditional view of the Phillips Curve, which shows an inverse relationship between inflation and unemployment in the short run when economic fluctuations originate from the supply side. However, recent research has suggested that this relationship may not be as strong as previously thought and may depend on other factors, such as expectations and the response of central banks.

If Fluctuations in Economic Activity Emanate from the Supply Side