The basic problem portrayed by the traditional Phillips Curve is
A) that a level of aggregate demand suﬃciently high to result in full employment may also cause inﬂation.
B) that changes in the composition of total labor demand tend to be deﬂationary.
C) that unemployment rises at the same time the general price level is rising.
D) the possibility that automation will increase the level of noncyclical unemployment.

Question

Quizplus · Accepted Answer

The traditional Phillips Curve shows the inverse relationship between unemployment and inflation - meaning as one increases the other decreases. However, this relationship can break down when the economy is at full employment and aggregate demand is high. At this point, any further increase in aggregate demand will only result in higher prices (inflation) without generating additional employment. This is known as the "stagflation" problem in macroeconomics.

The Basic Problem Portrayed by the Traditional Phillips Curve Is