The Phillips curve

Figure 4 shows a short-run Phillips curve (SRPC) and a long-run Phillips curve (LRPC).

Government intervention moves the economy from position A to position B and then the economy moves from position B to position C.

Which one of the following is most likely to explain the movement from position B to position C?

Explain how the data in Extract D (Figures 3 and 4) show that there may be a short-run trade-off between unemployment and inflation.

The long-run Phillips curve shows that

Extract E (lines 16–17) states ‘However, some argue that trying to maintain stable prices and low unemployment could create trade-offs.’

With the help of a diagram, explain why a trade-off between price stability and low unemployment might occur.

The short-run Phillips curve below illustrates the relationship between unemployment and inflation in an economy.

The Phillips curve shows that in this economy

Discuss the view that falling unemployment will inevitably lead to trade-offs with other macroeconomic policy objectives.