A trade-off between aggregate output and inflation
A)is the basis for fiscal policy.
B)sometimes exists, and is stable.
C)is not theoretically possible, and is not observed in practice.
D)is theoretically possible, but has never been observed in practice.
E)sometimes exists, but is unstable.

Question

Quizplus · Accepted Answer

The trade-off between aggregate output and inflation, often represented by the Phillips Curve, suggests that there can be a short-term inverse relationship between inflation and unemployment (a proxy for aggregate output). This relationship is sometimes observed but is considered unstable because it can shift due to various factors like expectations of inflation, making it unreliable for long-term policy planning.

A Trade-Off Between Aggregate Output and Inflation