A reverse Phillips Curve would consist of a
A) positive relationship between deviations from trend in real and nominal interest rates.
B) negative relationship between deviations from trend in real and nominal interest rates.
C) positive relationship between deviations from trend in the level of prices and the level of aggregate economic activity.
D) negative relationship between deviations from trend in the level of prices and the level of aggregate economic activity.

Question

Quizplus · Accepted Answer

A reverse Phillips Curve, also known as a "markup-adjusted Phillips Curve," shows a negative relationship between deviations from trend in the level of prices and the level of aggregate economic activity. This means that as the level of prices deviates from its trend, the level of economic activity moves in the opposite direction, with higher prices leading to lower economic activity, and vice versa. This is in contrast to a traditional Phillips Curve, which shows a positive relationship between inflation and unemployment. So, option D is the correct answer.

A Reverse Phillips Curve Would Consist of a