One way of expressing the meaning of the short-run Phillips curve is to say that
A)the cost of reducing unemployment is higher inflation
B)nothing but good comes from reducing unemployment
C)the cost of reducing inflation is lower unemployment
D)aggregate supply and aggregate demand will always be equal at the potential output level
E)the best economic policy is one that attempts to make the rate of inflation equal to the rate of unemployment

Question

Quizplus · Accepted Answer

The short-run Phillips curve shows the inverse relationship between unemployment and inflation in the short run. It suggests that when unemployment falls, inflation rises and vice versa. The cost of reducing unemployment by stimulating demand through expansionary policies like reducing interest rates, increasing government spending, or cutting taxes is higher inflation. Hence, option A is the correct choice. Option B is incorrect as reducing unemployment can in some cases lead to negative consequences like inflation, while option C is the opposite of what the Phillips curve suggests. Option D is related to potential output and not the Phillips curve, while option E is not a viable policy recommendation based solely on the Phillips curve.

One Way of Expressing the Meaning of the Short-Run Phillips