NISM Certifications · NISM-Series-XV: Research Analyst · Economic Analysis
Which statement best describes the Phillips curve relationship in short-run economic analysis?
The short-run Phillips curve shows that higher inflation is associated with lower unemployment. Tight labour markets raise wages and prices, creating an inverse trade-off between the two variables that policymakers consider when setting policy.
- AHigher inflation is associated with lower unemploymentCorrect
- BHigher inflation is associated with higher GDP deflator only
- CHigher interest rates always lead to lower unemployment
- DHigher unemployment is associated with higher wage growth
Explanation
The short-run Phillips curve shows an inverse trade-off between inflation and unemployment: tight labour markets push wages and prices up. The other options reverse or misstate this link.
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