According to the Phillips curve, firms raise prices when output is _____ the natural level of output or, equivalently, when the unemployment rate is _____ the natural rate of unemployment.
A) above; above
B) above; below
C) below; below
D) below; above

Question

Quizplus · Accepted Answer

According to the Phillips curve, firms raise prices when output is above the natural level of output or, equivalently, when the unemployment rate is below the natural rate of unemployment. Therefore, option B, where output is above the natural level and unemployment is below the natural rate, is the correct choice.

According to the Phillips Curve, Firms Raise Prices When Output