The short-run Phillips curve shows that

Question

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The short-run Phillips curve shows a trade-off between unemployment and inflation in the short run. Thus, a reduction in unemployment (moving to the left along the curve) comes at the expense of higher inflation, and vice versa. Option D correctly summarizes this relationship. Options A and B are incorrect as they suggest that low/high inflation and low/high unemployment can exist together, which is not what the Phillips curve shows. Option C is opposite to the correct relationship, as it implies that a reduction in unemployment leads to lower inflation. Option E is also incorrect as it suggests that reducing inflation leads to lower unemployment, which is not what the Phillips curve shows in the short run.

The Short-Run Phillips Curve Shows That