The tradeoff between inflation and the unemployment rate comes from
A) adaptive expectations
B) reservation wages
C) expected inflation
D) unexpected inflation
E) rational expectations

Question

Quizplus · Accepted Answer

The tradeoff between inflation and unemployment rate comes from unexpected inflation, which can impact the labor market in the short term by leading to a decrease in real wages and increase in unemployment. This tradeoff was famously described by the Phillips curve, which showed an inverse relationship between the two variables in the short run when inflation was unexpected. However, this tradeoff has become less prominent in recent years due to the impact of inflation expectations and other factors.

The Tradeoff Between Inflation and the Unemployment Rate Comes from