The Phillips curve shows
A)a positive relationship in the long-run between the rate of inflation and the rate of unemployment.
B)a negative relationship between the inflation rate and the unemployment rate,at least in the short run.
C)a positive relationship between contractionary monetary policy and higher price levels.
D)a positive relationship between price stability and constant,small-increment changes in the fiscal policy on the part of the Bank of Canada.

Question

Quizplus · Accepted Answer

The Phillips curve shows a negative relationship between the inflation rate and the unemployment rate, at least in the short run. When unemployment is low, firms have to compete for a limited pool of workers, leading to higher wages and prices. Conversely, when unemployment is high, workers are more willing to accept lower wages, leading to lower prices. In the long run, the Phillips curve becomes vertical, indicating that there is no trade-off between inflation and unemployment.

The Phillips Curve Shows