PRC-3 · Chapter 18 · Question 7 of 33
The A.W. Phillips curve illustrates a famous, short-run economic trade-off. According to this traditional theory, if a government uses expansionary policy to drastically lower unemployment, what negative side effect must it accept?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Higher rates of inflation
Explanation
The traditional Phillips curve demonstrates an inverse relationship in the short run: low unemployment is accompanied by high inflation (as tight labor markets drive up wages and prices).
More Inflation and Unemployment MCQs
- Q9To precisely track inflation, government statisticians select a typical 'basket' of hundreds of goods and services bought by an average…
- Q10A powerful labor union forces management to increase wages by 20% without any corresponding increase in labor productivity. How does this…
- Q11A government desperately prints massive amounts of new currency to fund its spending. With too much money circulating, consumer demand…
- Q12A global crisis causes the price of imported raw oil and natural gas to triple. Domestic manufacturers are forced to radically increase…
- Q13An accountant quits his job in Lahore to move to Islamabad. He is highly skilled and finds a new job in three weeks. During those three…