The inflation and unemployment data for the 1970s suggest that the aggregate-supply shocks of that period caused the:
A) Relationship between the unemployment rate and the rate of inflation to remain stable, predictable, and exhibited a clear tradeoff
B) Relationship between the unemployment rate and the rate of inflation to be similar to that found during the 1960 and 1969 period
C) Phillips Curve to shift to the right
D) Phillips Curve to shift to the left

Question

Quizplus · Accepted Answer

The Phillips Curve shows the inverse relationship between unemployment and inflation. However, during the 1970s, the relationship became unpredictable and exhibited no clear tradeoff. This suggests that the Phillips Curve shifted to the right due to the aggregate-supply shocks, which caused both inflation and unemployment to rise simultaneously. Therefore, Choice C is the best answer.

The Inflation and Unemployment Data for the 1970s Suggest That