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CSS Micro Macro Economics P-I QUESTION #1695
Question 1
The empirical inverse relationship between the inflation rate and the unemployment rate — suggesting a short-run trade-off between the two — is represented by which of the following economic concepts?
  • Okun's Law
  • The Phillips Curve✔️
  • Say's Law
  • The U-shaped average cost curve
Correct Answer Explanation
The Phillips Curve (A.W. Phillips, 1958) depicts the empirical inverse relationship between unemployment and inflation: when unemployment is low, inflation tends to be high, and vice versa. It represents the short-run trade-off policymakers face. Okun's Law relates unemployment to GDP growth. Say's Law states supply creates its own demand. The short-run Phillips Curve has been challenged by stagflation and the natural rate hypothesis.