The Phillips curve illustrates the relationship between
A) change in the money supply and change in unemployment.
B) tax rates and tax revenues.
C) the equilibrium level of income and the employment rate.
D) inflation and unemployment.

Question

Quizplus · Accepted Answer

The Phillips curve shows the inverse relationship between inflation and unemployment. As unemployment decreases, firms must compete for workers, leading to increased wages and higher production costs, which can in turn drive up inflation. Conversely, as unemployment increases, competition for jobs decreases, leading to lower wages and production costs, which can lead to lower inflation. Thus, the Phillips curve captures the trade-off between unemployment and inflation.

The Phillips Curve Illustrates the Relationship Between