If the Phillips curve represents a "________ relationship," then the trade-off between unemployment and inflation is permanent.

Question

Quizplus · Accepted Answer

If the Phillips curve represents a "structural relationship," then the trade-off between unemployment and inflation is permanent. This means that there is a natural rate of unemployment that cannot be lowered without causing inflation to increase. As such, policy interventions to reduce unemployment below this natural rate will only result in higher inflation, without any sustained reduction in unemployment. This view is consistent with the classical economic theory that holds markets to be efficient and self-correcting, and that emphasizes the importance of supply-side factors in determining economic outcomes.

If the Phillips Curve Represents a "________ Relationship," Then the Trade-Off