The idea behind the Phillips curve is that ________.
A)when the unemployment rate is low wages will decrease
B)tightness in the labor market puts upward pressures on wages and prices
C)when firms raise wages to attract new workers,prices decrease
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

The Phillips curve shows the inverse relationship between unemployment rate and inflation rate. It suggests that when there is low unemployment, there will be upward pressure on wages and prices. Therefore, option B is the correct answer. Options A and C are incorrect because they suggest an inverse relationship between wages and prices which contradicts the Phillips curve. Option D is incorrect because it includes options A and C which are incorrect. Option E is incorrect because the Phillips curve is a well-established economic concept.

The Idea Behind the Phillips Curve Is That ________