In the early 1960s, the discovery of the Phillips curve relationship caused economists and policymakers to believe they understood the trade-offs between two particular variables.What are the two variables?
A) aggregate supply and aggregate demand
B) inflation and unemployment
C) monetary policy and fiscal policy
D) rule-making policy and discretionary policy

Question

In the early 1960s, the discovery of the Phillips curve relationship caused economists and policymakers to believe they understood the trade-offs between two particular variables.What are the two variables?  
A) aggregate supply and aggregate demand 
B) inflation and unemployment 
C) monetary policy and fiscal policy 
D) rule-making policy and discretionary policy

Quizplus · Accepted Answer

The two variables are inflation and unemployment. The Phillips curve showed a negative relationship between these two variables, suggesting that policymakers could choose a level of inflation to achieve a particular level of unemployment, or vice versa. However, this relationship has become less reliable over time, with some periods of high inflation and unemployment, known as stagflation, challenging the idea of a stable trade-off between these two variables.

In the Early 1960s, the Discovery of the Phillips Curve