Discussion
A.W. Phillips' wage-inflation unemployment trade off is based on
Answer: A
A.W. Phillips's trade off between wage inflation and unemployment was based on the static expectations hypothesis: inflation expectations are taken as fixed, so a lower unemployment rate leads to higher wage inflation along a stable curve.
The adaptive expectations hypothesis came with Friedman and Phelps, who argued that the trade off is only temporary, and the rational expectations hypothesis came later, so options B and D are wrong; the extrapolative one is a different kind of expectation.
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