If economic fluctuations originate on the supply side,

Question

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If economic fluctuations originate on the supply side, inflation and unemployment will be positively related. This is because supply-side fluctuations often arise from changes in the availability or cost of inputs, such as labor or raw materials, which can affect production costs and ultimately lead to higher prices for goods and services. As prices rise, firms may choose to expand output to take advantage of the higher margins, leading to increased demand for labor and lower unemployment. However, if the increase in production costs is severe enough, firms may choose to reduce output or exit the market entirely, leading to higher unemployment and inflation simultaneously.

If Economic Fluctuations Originate on the Supply Side