The classical dichotomy breaks down for a Phillips curve, which shows the relationship between a nominal variable, ______, and a real variable, ______.
A) output; prices
B) money; output
C) inflation; unemployment
D) unemployment; inflation

Question

Quizplus · Accepted Answer

The Phillips curve shows the relationship between inflation (a nominal variable) and unemployment (a real variable). Therefore, it does not fit into the classical dichotomy, which separates nominal and real variables. Choices A and B both involve nominal variables on both sides of the equation, while choice D swaps the positions of the nominal and real variables.

The Classical Dichotomy Breaks Down for a Phillips Curve, Which