A trade-off between aggregate output and inflation
A) is theoretically possible, but has never been observed in practice.
B) may exist in the short run, but not in the long run.
C) exists in both the short run and the long run.
D) is part of the Keynesian sticky wage model.
E) may exist in the long run, but not in the short run.

Question

Quizplus · Accepted Answer

According to the Phillips curve theory, in the short run, there is a trade-off between inflation and aggregate output. However, in the long run, the trade-off disappears, and there is a natural rate of unemployment that is not affected by changes in inflation. Therefore, there can be a trade-off between inflation and output in the short run, but not in the long run.

A Trade-Off Between Aggregate Output and Inflation