Along the short-run Phillips curve,when the unemployment rate goes down,
A)unemployment benefit payments go up
B)prices go down
C)the Phillips curve shifts outward
D)the inflation rate goes up
E)there is no change in the rate of inflation

Question

Quizplus · Accepted Answer

Along the short-run Phillips curve, there is an inverse relationship between the unemployment rate and the inflation rate. When the unemployment rate goes down, the labor market gets tighter, and competition for workers may drive wages up, increasing the cost of production, and ultimately raising prices. This leads to an increase in the inflation rate, as shown by a movement up along the curve. Therefore, option D is the correct answer. None of the other options are related to changes in the unemployment rate along the Phillips curve.

Along the Short-Run Phillips Curve,when the Unemployment Rate Goes Down