According to the Phillips curve, if current output is above potential output:
A) inflation falls.
B) inflation rises.
C) unemployment falls.
D) inflation is constant.
E) tax rates rise.

Question

Quizplus · Accepted Answer

According to the Phillips curve, if current output is above potential output, there is a lower level of unemployment which increases competition for labour and wage rises. This, in turn, translates into higher costs of production and higher prices. Therefore, inflation rises.

According to the Phillips Curve, If Current Output Is Above