The short-run Phillips curve is downward sloping because
A) the expected inflation rate is zero in the short run.
B) the unemployment rate can be above or below the natural unemployment rate.
C) reducing the unemployment rate will reduce the inflation rate in the short run.
D) the economy always returns to full employment.
E) in the long run, the expected inflation rate equals the actual inflation rate.

Question

Quizplus · Accepted Answer

The short-run Phillips curve shows a negative relationship between unemployment and inflation, indicating that an increase in aggregate demand can lead to a temporary decrease in unemployment but also to an increase in the inflation rate. The unemployment rate can be above or below the natural unemployment rate in the short run, which is why the short-run Phillips curve is downward sloping.

The Short-Run Phillips Curve Is Downward Sloping Because