The theory behind the short-run Phillips curve relationship is that:
A) people's expectations of future inflation are based on their most recent experience.
B) people form expectations on the basis of all available information.
C) monetary policy has no real effects in the long-run.
D) monetary expansion stimulates the economy, and this outcome reduces the unemployment rate.
E) prices are flexible in the long run, causing no relationship between unemployment and inflation.

Question

Quizplus · Accepted Answer

The short-run Phillips curve suggests that there is an inverse relationship between inflation and unemployment. Monetary expansion can stimulate economic activity, leading to lower unemployment in the short run.

The Theory Behind the Short-Run Phillips Curve Relationship Is That