Which of the following correctly describes the Phillips curve?
A) A curve showing the inverse relationship between interest rates and the quantity of money demanded.
B) A curve showing the direct relationship between interest rates and the quantity of money demanded.
C) A curve showing the direct relationship between the inflation rate and the unemployment rate.
D) A curve showing the inverse relationship between the inflation rate and the unemployment rate.

Question

Which of the following correctly describes the Phillips curve?   ​
A) ​A curve showing the inverse relationship between interest rates and the quantity of money demanded.
B) ​A curve showing the direct relationship between interest rates and the quantity of money demanded.
C) ​A curve showing the direct relationship between the inflation rate and the unemployment rate.
D) ​A curve showing the inverse relationship between the inflation rate and the unemployment rate.

Quizplus · Accepted Answer

The Phillips curve shows the inverse relationship between the inflation rate and the unemployment rate. As one increases, the other decreases, and vice versa. This relationship is based on the idea that as unemployment decreases, workers have more bargaining power, which leads to higher wages and ultimately higher prices.

Which of the Following Correctly Describes the Phillips Curve