There is a trade-off between unemployment and inflation when the aggregate
A)Supply curve is upward-sloping.
B)Supply curve is downward-sloping.
C)Supply curve is vertical.
D)Demand curve is downward-sloping.

Question

Quizplus · Accepted Answer

When the aggregate supply curve is upward-sloping, there is a trade-off between unemployment and inflation. This is because in the short run, an increase in aggregate demand leads to an increase in both output and prices. However, in the long run, the upward-sloping aggregate supply curve means that increased demand can only lead to increased prices, not increased output. This means that if policymakers want to reduce unemployment (increase output) in the short run, they must accept higher inflation. Conversely, if they want to reduce inflation, they must accept higher unemployment. This trade-off is commonly known as the Phillips curve.

There Is a Trade-Off Between Unemployment and Inflation When the Aggregate