The Phillips curve describes the relationship between
A)aggregate expenditure and aggregate demand.
B)the money supply and interest rates.
C)unemployment and the rate of change of wages.
D)inflation and interest rates.
E)the output gap and potential GDP.

Question

Quizplus · Accepted Answer

The Phillips curve describes the inverse relationship between unemployment and the rate of change of wages. As unemployment decreases, the demand for labor increases and employers may need to offer higher wages to attract and retain workers. This leads to a decrease in unemployment and an increase in wages. However, as unemployment continues to decrease, wages may increase at a faster rate, which can lead to higher inflation.

The Phillips Curve Describes the Relationship Between