Which of the following explains why the original Phillips curve relation disappeared or,as some economists have remarked,"broke down" in the 1970s?

Question

Quizplus · Accepted Answer

Individuals changing the way they formed expectations of inflation is a key reason the original Phillips curve relation, which suggested an inverse relationship between unemployment and inflation, broke down in the 1970s. This period saw the rise of rational expectations theory, which posits that people use all available information, including knowledge of economic policies, to forecast inflation. This shift meant that the simple trade-off between inflation and unemployment, as originally conceptualized, no longer held because people adjusted their expectations based on observed economic policies and outcomes, leading to phenomena like stagflation (high inflation and high unemployment occurring simultaneously).

Which of the Following Explains Why the Original Phillips Curve