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A-Level Economics · Short-run Phillips curve diagram question

EVALUATION: energy prices spike, so firms' costs jump. Which point shows the outcome the short-run trade-off cannot deliver?

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The answer

Point F. F: 5% unemployment AND 6% inflation. Cost-push inflation arrives alongside a recession, so both objectives worsen at once — which is exactly why cost-push is treated as the worse kind. The short-run trade-off is a demand-side story: one objective improves as the other worsens. A cost shock breaks it — SRAS shifts left, so prices rise WHILE real output falls and unemployment rises. That is point F, off the curve, with both objectives worse. Diagnose which kind of inflation you are looking at before you prescribe anything.

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This is one of 5 questions on the short-run phillips curve diagram — every corner lettered, every wrong answer diagnosed.

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