Taken together, the Phillips curve and Okun's law imply there is a short-term ________ relationship between ________ and inflation.
A) positive; interest rates
B) positive; unemployment
C) negative; interest rates
D) negative; unemployment
E) Not enough information is given.

Question

Quizplus · Accepted Answer

The Phillips curve suggests a negative relationship between unemployment and inflation, meaning as unemployment decreases, inflation increases. Okun's law, on the other hand, suggests a negative relationship between unemployment and GDP, meaning as unemployment decreases, GDP increases. Therefore, there is a short-term negative relationship between unemployment and inflation.

Taken Together, the Phillips Curve and Okun's Law Imply There