A.W. Phillips drew a graph which became known as the Phillips curve. Which one of the following statements regarding this curve is correct? (a) The variables used in the Phillips curve are interest rate and rate of unemployment; (b) The empirical evidence supporting the original Phillips curve came from the United States; (c) The original Phillips curve illustrated an inverse relationship between the natural rate of unemployment and the expected inflation rate; (d) The original Phillips curve illustrated a trade-off between the inflation rate and the unemployment rate.

A.W Phillips examined the United Kingdom's unemployment rate and wage rate for the period between…

Answered: A.W. Phillips drew a graph which became…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A.W. Phillips drew a graph which became known as the Phillips curve. Which one of the following statements regarding this curve is correct?

(a)	The variables used in the Phillips curve are interest rate and rate of unemployment;
(b)	The empirical evidence supporting the original Phillips curve came from the United States;
(c)	The original Phillips curve illustrated an inverse relationship between the natural rate of unemployment and the expected inflation rate;
(d)	The original Phillips curve illustrated a trade-off between the inflation rate and the unemployment rate.

Definition Definition Relationship between the rate of unemployment and the rate of inflation that shows that the lower the initial rate of unemployment, the greater the rise in wage rate corresponding to a given rise in the rate of unemployment. The Phillips curve assumes that the ratio between prices and nominal wage rates is constant in the short run. Presented graphically, the Phillips curve shows an inverse relationship between the rate of unemployment and the rate of inflation.

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