The Phillips curve illustrates the relationship between
A) the interest rate and the money supply.
B) the interest rate and the level of investment.
C) aggregate demand and aggregate supply.
D) output and income.
E) inflation and unemployment.

Question

Quizplus · Accepted Answer

The Phillips curve shows the inverse relationship between inflation and unemployment, implying that if one goes up, the other goes down. As inflation rises, firms tend to hire more workers, reducing unemployment. Conversely, as firms reduce employment due to decreasing demand, inflation falls. Thus, the Phillips curve describes the tradeoff between inflation and unemployment that exists in the economy over the short run.

The Phillips Curve Illustrates the Relationship Between