Asked by Michael Ariestan on Jun 13, 2024
Verified
The Phillips curve tradeoff implies
A) that if the curve is stable,society must accept increases in inflation in exchange for decreases in unemployment.
B) that if the curve is unstable,society must accept increases in inflation in exchange for decreases in unemployment.
C) that if the curve is stable,society must accept increases in inflation in exchange for increases in unemployment.
D) that if the curve is unstable,society must accept falling unemployment when inflation falls.
Phillips Curve Tradeoff
An economic theory suggesting an inverse relationship between the rate of inflation and the rate of unemployment, indicating that reducing inflation may lead to higher unemployment rates.
- Elucidate the principles of the Phillips curve and its impact on the creation of economic strategies.
Verified Answer
SR
shanai ramirezJun 14, 2024
Final Answer :
A
Explanation :
The Phillips curve tradeoff implies that there is a negative relationship between unemployment and inflation in the short run, and that policymakers can choose their desired level of unemployment at the cost of a corresponding level of inflation. Therefore, if the curve is stable, society must accept increases in inflation to achieve decreases in unemployment. Option B is incorrect because an unstable curve would imply that the relationship between unemployment and inflation is unpredictable and may not hold true. Option C is incorrect because a stable curve does not give society the option to increase both inflation and unemployment simultaneously. Option D is incorrect because falling unemployment when inflation falls is a desirable outcome and does not require society to accept any cost.
Learning Objectives
- Elucidate the principles of the Phillips curve and its impact on the creation of economic strategies.
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