AP Macroeconomics : How to graph short-run Phillips curves

Example Questions

Example Question #1 : Graphs

The short-run Phillips curve depicts which of the following relationships?

A direct and positive relationship between employment and the real interest rate

A tradeoff between unemployment and inflation

A direct and positive relationship between unemployment and inflation

A tradeoff between employment and inflation

A tradeoff between unemployment and inflation

Explanation:

The short-run Phillips curve indicates an inverse relationship between inflation and unemployment. According to the short-run Phillips curve, as unemployment goes up, inflation goes down, and as inflation goes up, unemployment goes down.

The correct answer is therefore "A tradeoff between unemployment and inflation." Recall that a tradeoff refers to an inverse relationship.

The other answer choices are all distortions of the predictions of the short-run Phillips curve.