Question

The shape of the ______________ involves a tradeoff between unemployment and inflation.
a. aggregate demand curve
b. aggregate supply curve
c. Phillips curve
d. Keynesian demand curve

Answer 1

Answer: Option (c) is correct.

Explanation:

The short run Phillips curve represents the trade off between unemployment  and inflation. This means that if there is an increase in the inflation rate then as a result unemployment rate decreases and  if there is an increase in the unemployment rate then as a result inflation rate decreases. There is an inverse relationship between unemployment and inflation rate.

The long run Phillips curve is a vertical line which is at a point of natural rate of unemployment and short run Phillips curve is L-shaped.