Moving along the short-run Phillips curve, as the unemployment rate increases the inflation rate
A) decreases.
B) increases.
C) remains unchanged.
D) initially decreases and then increases.
E) initially increases and then decreases.

Question

Quizplus · Accepted Answer

According to the short-run Phillips curve, there is an inverse relationship between inflation and unemployment. As unemployment increases, there is less pressure on wages, and firms are less able to pass on price increases to consumers. Therefore, the inflation rate decreases as the unemployment rate increases.

Moving Along the Short-Run Phillips Curve, as the Unemployment Rate