If the unemployment rate rises and the inflation rate falls, while the natural unemployment rate and the expected inflation rate remain constant, then we are studying a movement along the
A)aggregate demand curve.
B)long-run aggregate supply curve.
C)Friedman curve.
D)short-run Phillips curve.
E)Phelps-Friedman curve.

Question

Quizplus · Accepted Answer

The given scenario describes a movement along the short-run Phillips curve, which shows the inverse relationship between inflation and unemployment in the short run, holding other factors constant. When the unemployment rate increases, firms have less market power and may lower their prices, leading to a decrease in inflation. However, this effect is temporary and the long-run Phillips curve is vertical at the natural rate of unemployment.

If the Unemployment Rate Rises and the Inflation Rate Falls