Figure 33-5

Over a five-year period, economists observed that the unemployment-inflation relationship appeared as in Figure 33-5. Economic theory would conclude that the period

Question

Figure 33-5

Over a five-year period, economists observed that the unemployment-inflation relationship appeared as in Figure 33-5. Economic theory would conclude that the period

Quizplus · Accepted Answer

The Phillips curve suggests an inverse relationship between unemployment and inflation, meaning that as unemployment decreases, inflation increases. However, over this five-year period, unemployment increased while inflation also increased, suggesting that external factors such as supply shocks (e.g. increased energy and food costs) were the dominant influence on inflation rather than demand-side changes.

Figure 33-5 Over a Five-Year Period, Economists Observed That the Unemployment-Inflation Relationship