The short-run Phillips curve shows that:
A)the economy can have low inflation and low unemployment simultaneously.
B)the economy can have high per-capita income and high interest rate simultaneously.
C)a reduction in per-capita income comes at the expense of lower inflation.
D)a reduction in unemployment comes at the expense of higher inflation.
E)a reduction in inflation comes at the expense of lower exchange rate.

Question

Quizplus · Accepted Answer

The short-run Phillips curve shows an inverse relationship between unemployment and inflation. Therefore, a reduction in unemployment can only be achieved at the expense of higher inflation, as shown by movement along the curve. However, in the long run, the Phillips curve is vertical, indicating that there is no trade-off between inflation and unemployment.

The Short-Run Phillips Curve Shows That