The Phillips curve trade-off relationship implies that

Question

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The Phillips curve trade-off relationship suggests that there is a trade-off between unemployment and inflation. The government can fine-tune the economy and pick the most preferred combination of unemployment and inflation. However, there are limits to this trade-off, and the relationship is not always stable in the long run. Therefore, choice B is the best answer. Choice A is incorrect because the Phillips curve trade-off relationship does not suggest that the government can generate both the natural rate of unemployment and zero inflation. Choice C is incorrect because the Phillips curve trade-off relationship does not suggest that low unemployment can be obtained only by generating rapidly increasing inflation. Choice D is incorrect because there is a relationship between inflation and unemployment, as suggested by the Phillips curve trade-off relationship.

The Phillips Curve Trade-Off Relationship Implies That