Asked by Kelsey Whalen on May 04, 2024
Verified
The short-run Phillips curve is based on the classical dichotomy.
Short-Run Phillips
A theoretical framework that implies a short-term inverse correlation between inflation rates and unemployment levels.
Classical Dichotomy
The theoretical separation of nominal and real variables in an economy, suggesting that changes in the money supply only affect nominal variables and not real variables like output.
- Acquire knowledge on the theoretical bases and impacts of the Phillips curve.
- Comprehend the importance of the classical dichotomy and its applicability to modern economic strategies.
Verified Answer
ZK
Zybrea KnightMay 07, 2024
Final Answer :
False
Explanation :
The short-run Phillips curve illustrates an inverse relationship between inflation and unemployment, suggesting that lower unemployment can come at the cost of higher inflation, and vice versa. This concept does not rely on the classical dichotomy, which separates real and nominal variables, assuming that changes in the money supply only affect nominal variables and not real variables like output or unemployment. The Phillips curve, especially in the short run, challenges this by showing how monetary policy (a nominal change) can affect real outcomes like employment.
Learning Objectives
- Acquire knowledge on the theoretical bases and impacts of the Phillips curve.
- Comprehend the importance of the classical dichotomy and its applicability to modern economic strategies.
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