In terms of the Phillips curve, the experience of the 1970s indicates that macro-policy
A) can permanently reduce unemployment if we are willing to tolerate higher inflation.
B) can reduce unemployment in the long run if we are willing to tolerate higher inflation.
C) may be able to reduce unemployment but cannot retard inflation.
D) may be able to reduce unemployment in the short run, but there is little evidence that expansionary policies can reduce unemployment permanently.

Question

Quizplus · Accepted Answer

The experience of the 1970s showed that expansionary policies could reduce unemployment in the short run but there was little evidence that they could permanently reduce unemployment. Additionally, attempts to reduce unemployment through expansionary policies were often accompanied by inflation. This suggests that macro-policy may not be able to retard inflation.

In Terms of the Phillips Curve, the Experience of the 1970s