Answer to Question #98421 in Macroeconomics for Tiffany

Question

3. There is debate concerning both monetary and fiscal policy. You’ll examine each separately, then together.
d. The Phillips curve shows an important trade-off faced by economic policymakers. This trade-off was used to point out the legitimacy of government intervention in the economy for many years.
(ii) The trade-off demonstrated by the Phillips curve seemed to fail during the 1970s. Why? What happened?

Answer 1

According to most economists in the short-run there exist a trade-off between higher inflation and unemployment. The currently accepted belief about the phillips curve is that unemployment can persist in the long-run and if demand increases it will lower unemployment and increase inflation rate.