The inﬂation and unemployment data for the 1970s suggest that the aggregate-supply shocks of that period caused the
A) relationship between the unemployment rate and the rate of inﬂation to remain stable and predictable and to exhibit a clear trade-off.
B) relationship between the unemployment rate and the rate of inﬂation to be similar to that found during the 1960s.
C) Phillips Curve to shift to the right.
D) Phillips Curve to shift to the left.

Question

Quizplus · Accepted Answer

The Phillips Curve is the relationship between unemployment and inflation, and it suggests a trade-off between these two variables. In the 1970s, there were several aggregate-supply shocks, including oil price increases and supply disruptions, that caused inflation and unemployment to rise simultaneously, which shifted the Phillips Curve to the right. This means that for any given level of unemployment, the rate of inflation was higher than it would have been before the shocks. Therefore, choice C is the best answer as it accurately reflects the impact of the aggregate-supply shocks on the Phillips Curve in the 1970s.

The Inﬂation and Unemployment Data for the 1970s Suggest That