PRC-3 · Chapter 18 · Question 17 of 33
According to the traditional short-run A.W. Phillips Curve, if a government enacts aggressive policies to drive the unemployment rate down to almost zero, what negative economic consequence must it accept?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Significantly higher inflation
Explanation
The traditional Phillips curve illustrates a short-run trade-off: lower unemployment leads to tighter labor markets and higher wages, resulting in higher inflation.
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