The negative relationship between inflation and unemployment occurs when:
A) unemployment expectations are stable.
B) inflation is rising.
C) inflation expectations are stable.
D) countercyclical policy is being used.

Question

Quizplus · Accepted Answer

The negative relationship between inflation and unemployment, often described by the Phillips Curve, is most evident when inflation expectations are stable. In such a scenario, as inflation decreases, unemployment tends to increase, and vice versa, because workers and employers make wage and hiring decisions based on stable expectations of future inflation.

The Negative Relationship Between Inflation and Unemployment Occurs When