In the Phillips curve equation,which of the following will cause a reduction in the current inflation rate?

Question

Quizplus · Accepted Answer

According to the Phillips curve equation, there is an inverse relationship between inflation and unemployment. So, an increase in the unemployment rate (choice B) will generally cause a reduction in the current inflation rate. Similarly, a reduction in the expected inflation rate (choice A) can also lead to a decrease in the current inflation rate by lowering the inflationary expectations of workers and firms. Finally, a reduction in the mark-up (the difference between the cost of production and the price charged by firms) (choice C) can result in lower prices and hence lower inflation. Therefore, all of the above choices will cause a reduction in the current inflation rate, making option D the correct answer.

In the Phillips Curve Equation,which of the Following Will Cause