The short run Phillips curve
A) shows the trade off between the inflation rate and the unemployment rate and it shifts when the inflation rate changes.
B) shows that any inflation rate can co-exist with the natural unemployment rate.
C) shows the trade off between the inflation rate and the unemployment rate and it shifts when the expected inflation rate changes.
D) shows the relationship between the inflation rate and the expected inflation rate and it shifts when the natural unemployment rate changes.
E) shows the relationship between the inflation rate and the nominal interest rate and it shifts when the natural unemployment rate changes.

Question

Quizplus · Accepted Answer

The short run Phillips curve shows the trade-off between the inflation rate and the unemployment rate, but it shifts when the expected inflation rate changes. The natural unemployment rate is not directly related to the short run Phillips curve, although it can affect the level of unemployment that can be sustained in the long run. The nominal interest rate is not directly related to the Phillips curve, although it can affect the level of aggregate demand and thus the position of the Phillips curve.

The Short Run Phillips Curve