A movement along the Phillips curve shows that the unemployment rate and inflation rate are A. Inversely related to each other.B. Directly related to each other.C. Changing in response to shifts in aggregate supply.D. Changing in response to supply-side policy
A. Inversely related to each other.
A. Inversely related to each other.
The Phillips curve shows the inverse relationship between unemployment and inflation. According to this curve, when unemployment is low, inflation tends to be high and vice versa. This relationship holds true in the short run, but in the long run, the Phillips curve is vertical, indicating that there is no trade-off between inflation and unemployment in the long run.
A movement along the Phillips curve indicates a change in either the unemployment rate or inflation rate. For example, if the unemployment rate decreases, there will be upward pressure on wages as employers compete for workers. This will lead to an increase in the cost of production for firms, causing them to raise prices, leading to an increase in the inflation rate.
Therefore, a movement along the Phillips curve shows that the unemployment rate and inflation rate are inversely related to each other.
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