Economics Phillips Curve Questions
The Phillips Curve relates to the concept of the output-inflation trade-off by illustrating the inverse relationship between unemployment and inflation in the short run. According to the Phillips Curve, when unemployment is low, inflation tends to be high, and vice versa. This trade-off suggests that policymakers face a choice between achieving low unemployment or low inflation in the short term. If they attempt to reduce unemployment by stimulating aggregate demand, it may lead to higher inflation. Conversely, if they focus on reducing inflation by tightening monetary policy, it may result in higher unemployment. Therefore, the Phillips Curve highlights the trade-off between these two variables and the challenges policymakers face in managing both simultaneously.