Consider the short-run Phillips curve, the unemployment rate and inflation rate are considered to

Question

BlackTom AI · Accepted Answer

Short-run Phillips curve is downward-sloping, so the unemployment rate and inflation rate have an inverse relationship.

1. Relevant knowledge points and concepts
- The short-run Phillips curve (SRPC) describes a trade-off between inflation and unemployment when inflation expectations are relatively fixed. 
- In the short run, nominal wages and prices are sticky, so changes in aggregate demand affect real output and employment as well as the price level. 
- In the long run, with fully adjusted expectations, the Phillips curve is vertical at the natural rate of unemployment, and there is no long-run trade-off.

2. Step-by-step reasoning
Step 1: Assume sticky nominal wages/prices and relatively fixed inflation expectations in the short run.  
Step 2: An expansionary policy (e.g., higher government spending or lower interest rates) shifts aggregate demand rightward. This raises the price level (inflation) and output temporarily.  
Step 3: As output rises above potential, firms hire more workers, so unemployment falls. Thus higher inflation is associated with lower unemployment.  
Step 4: Conversely, a contractionary shock lowers inflation and raises unemployment. Therefore the SRPC slopes downward: higher inflation ↔ lower unemployment, lower inflation ↔ higher unemployment.

3. Intermediate “calculation” or illustrative steps
- No numerical computation is required; the logical intermediary is: AD↑ → P↑ (inflation) and Y↑ → U↓ (unemployment falls).  
- The direction of movement on the SRPC is inverse: ΔInflation > 0 implies ΔUnemployment < 0 and vice versa.

4. Why the correct answer is correct
Because the SRPC captures the empirical and theoretical short-run trade-off: policies or shocks that raise inflation typically reduce unemployment temporarily due to sticky prices/wages and increased demand for labor.

5. Why the other options are incorrect
- “Have a linear relationship.” The SRPC is not necessarily linear; its key feature is a negative slope, not linearity.  
- “Have a positive relationship.” This would mean inflation rises with unemployment, which contradicts the SRPC.  
- “Have an unknown relationship.” The SRPC explicitly posits a predictable inverse relationship in the short run.

Conclusion: The correct choice is “have an inverse or negative relationship,” which matches the provided answer.

Consider the short-run Phillips curve, the unemployment rate and inflation rate are considered toSingle choice

Similar Questions

An adverse supply shock shifts the short-run Phillips curve right and the short-run aggregate-supply curve left.

The long-run Phillips curve is consistent with monetary neutrality implied by the classical dichotomy.

Other things constant, which of the following would reduce unemployment and raise inflation?

The government of Blenova considers two policies. Policy A would shift AD right by 500 units while policy B would shift AD right by 300 units. According to the short-run Phillips curve, policy A will lead

The short-run relationship between inflation and unemployment is often called

The Phillips Curve and the ________ are different ways of showing the same relationship between inflation and unemployment.

In the long run, the Phillips curve ________.

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler