Which of the following statement(s) is / are true with respect to Phillips Curve ? 1. It shows the trade-off between unemployment and inflation 2. The downward sloping curve of Phillips Curve is generally held to be valid only in the short run 3. In the long run, Phillips Curve is usually thought to be horizontal at the non-accelerating inflation rate of unemployment (NAIRU) Select the correct answer using the code given below :

The Phillips Curve describes an inverse relationship between the rate of inflation and the rate of unemployment [1]. Statement 1 is correct as it highlights this trade-off, where lower unemployment typically leads to higher inflation [1]. Statement 2 is also correct because this downward-sloping trade-off is generally considered valid only in the short run. In the long run, as inflation expectations adjust, the trade-off disappears [4]. Statement 3 is incorrect because the Long-Run Phillips Curve (LRPC) is characterized as a vertical line, not a horizontal one, at the Non-Accelerating Inflation Rate of Unemployment (NAIRU). At this vertical line, any attempt to reduce unemployment below the NAIRU only results in higher inflation without permanent gains in employment [4]. Therefore, only statements 1 and 2 are true.

Sources

1. [1] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 4: Inflation > PHILLIPS CURVE > p. 71
2. [4] https://www.khanacademy.org/economics-finance-domain/ap-macroeconomics/ap-macro-resources-and-exam-preparation/every-graph-used-in-ap-macroeconomics/a/the-phillips-curve-model