Which of the following best explains the negative slope of the short-run Phillips curve?
A) Weak growth in aggregate demand keeps the economy below potential GDP, so unemployment rises but the rate of inflation falls.
B) Aggregate demand grows so quickly that the inflation rate rises as unemployment rises.
C) Long-run aggregate supply increases quickly enough that inflation falls as unemployment also falls.
D) Short-run aggregate supply increases at the same pace as aggregate demand increases so that inflation and unemployment do not change.
E) Strong growth in technology causes the short-run aggregate supply curve to shift rightward faster than aggregate demand, so unemployment falls and the inflation rate falls.
Correct Answer:
Verified
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