The short-run Phillips curve presents a tradeoff because a
A) higher unemployment rate can be achieved at the cost of a higher inflation rate.
B) lower unemployment rate can be achieved at the cost of a lower inflation rate.
C) lower unemployment rate can be achieved at the cost of a higher inflation rate.
D) higher inflation leads to a higher nominal interest rate.
E) higher price level leads to a lower real GDP.

Question

Quizplus · Accepted Answer

The short-run Phillips curve shows a negative relationship between the unemployment rate and the inflation rate. This means that a lower unemployment rate can be achieved in the short run at the cost of a higher inflation rate, as shown by the downward slope of the curve. Therefore, choice (C) is correct. Option (A) is incorrect as it presents the opposite tradeoff to what the curve suggests, and options (B), (D), and (E) are unrelated to the short-run Phillips curve.

The Short-Run Phillips Curve Presents a Tradeoff Because a