The Phillips curve shows that ?
Correct answer: D. a decrease in inflation temporarily increases unemployment.
- A. the business cycle has been eliminated
- B. an increase in inflation temporarily increases unemployment.
- C. inflation and unemployment are unrelated in the short run.
- D. a decrease in inflation temporarily increases unemployment.
- E. none of these
Explanation
The short-run Phillips curve describes an inverse relationship between inflation and unemployment: reducing inflation can temporarily raise unemployment as the economy adjusts. Thus option d states the relevant short-run trade-off.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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