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Which statement fails to describe the behavior of the Phillips curve? a/When output falls short of...

Which statement fails to describe the behavior of the Phillips curve?

a/When output falls short of its potential, inflation decreases.

b/When the economy is booming, inflation increases.

c/A steeper Phillips curve causes inflation to necessarily increase.

d/When the output is at potential, inflation remains constant.

e/inflation changes are positively correlated with short-run output.

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Answer #1

Answer : The answer is option a.

Output may fall due to decrease in aggregate demand or due to decrease in aggregate supply. If aggregate demand decrease remaining others things same as before then inflation decrease. And if aggregate supply decrease remaining other things same as before then inflation increase. So, if output decreases then it does not mean that the inflation decreases. Hence except option a other options are not correct. Therefore, option a is the correct answer.

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