Question

Which of the following is the most correct statement about the relationship between inflation and unemployment? a. In the short run, falling inflation is associated with rising unemployment. b. In the long run, falling inflation is associated with falling unemployment. c. In the long run, falling inflation is associated with rising unemployment. d. In the short run, falling inflation is associated with falling unemploymen

Answer 1

Answer: In the short run, falling inflation is associated with rising unemployment.

Explanation:

The short-run Phillips curve describes the inverse relationship between inflation and unemployment: if unemployment increases, inflation decreases, while if unemployment decreases, inflation increases. This inverse correlation only endures in the short-run, while in the long run there is no such correspondence.