Which scenario best describes the short-run Phillips Curve?

The short-run Phillips Curve illustrates an inverse relationship between inflation and unemployment, which is encapsulated by the idea that when inflation rises, unemployment tends to fall, and vice versa. This trade-off is a fundamental aspect of the short-run economic interactions observed by economists. In times of economic expansion, firms may raise prices due to increased demand, which can simultaneously lead to lower unemployment rates as more workers are needed to meet production needs.

This framework is based on the premise that there are short-term factors affecting the economy—such as adaptive expectations and price/wage rigidity—that allow this trade-off to exist in the short run. Over time, as expectations adjust, the relationship depicted by the Phillips Curve can shift, but in the short run, the downward slope characterizes the trade-off clearly.

The other choices do not accurately summarize the nature of the short-run Phillips Curve. It does not indicate a stable relationship but rather highlights a trade-off that can change over time. While the natural rate of unemployment can indeed be represented as a vertical line in the long-run Phillips Curve, that does not apply to the short-run version. Furthermore, the short-run Phillips Curve is indeed influenced by economic shocks, which can shift the trade-off depicted, contradicting the idea that it