AP Macroeconomics : How to graph short-run Phillips curves

Study concepts, example questions & explanations for AP Macroeconomics

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Example Questions

Example Question #1 : How To Graph Short Run Phillips Curves

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

Possible Answers:

A direct and positive relationship between unemployment and inflation

A tradeoff between employment and inflation

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

A tradeoff between unemployment and inflation

Correct answer:

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. 

 

 

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