Evidence over time indicates that the relationship depicted in the simple Phillips curve holds true only if policymakers:
A) aggressively pursue countercyclical solutions to inflation and unemployment problems.
B) do nothing to take advantage of the positive relationship on the graph.
C) do nothing to take advantage of the negative relationship on the graph.
D) realize that output cannot stabilize at the natural rate of unemployment.

Question

Quizplus · Accepted Answer

The simple Phillips curve suggests an inverse relationship between inflation and unemployment, implying that reducing unemployment could lead to higher inflation and vice versa. However, this relationship holds true only if policymakers do not exploit this trade-off to achieve short-term policy goals, as doing so can lead to expectations of inflation, which in turn can shift the Phillips curve and erode the trade-off over time.

Evidence Over Time Indicates That the Relationship Depicted in the Simple