Q. Consider the following statements regarding the Phillips Curve:
Statement I: The Phillips Curve advocates an inverse relationship between inflation and unemployment, suggesting a trade-off between them.
Statement II: According to economists Milton Friedman and Edmund Phelps, the trade-off between inflation and unemployment holds true in the long run.
Which one of the following is correct in respect of the above statements?

[A] Both Statement I and Statement II are correct and Statement II explains Statement I.

[B] Both Statement I and Statement II are correct but Statement II does not explain Statement I.

[C] Statement I is correct but Statement II is 13not correct.

[D] Statement I is not correct but Statement II is correct.

Answer: C
Notes:

Explanation: Statement I is correct as the Phillips Curve is a graphic curve that shows an inverse relationship or trade off between inflation and unemployment. Statement II is incorrect because Milton Friedman and Edmund Phelps challenged this idea, arguing that the trade-off was only short-term and there was no long-term trade-off between inflation and unemployment.

Blog
Academy
Community