According to the Phillips curve, there is a trade-off between inflation and unemployment in the short run.Question 1Answera.Trueb.False

Answer

The statement is a. True.

Explanation

The Phillips curve represents an inverse relationship between the rate of inflation and the unemployment rate in the short run. This concept suggests that as inflation increases, unemployment tends to decrease, and vice versa. The trade-off arises because lower unemployment can lead to higher inflation due to increased demand for goods and services, whereas higher unemployment generally results in lower inflationary pressures. However, it’s important to note that this relationship may differ in the long run due to factors such as expectations of inflation and supply shocks, which can lead to a vertical long-run Phillips curve where no trade-off exists.

In conclusion, the short-run Phillips curve indicates a trade-off between inflation and unemployment, making the given statement true.