Final answer:
The movements of employment and the price level correspond with the business cycle; employment generally increases and the price level rises during expansions, while both tend to fall during recessions. The Phillips Curve illustrates the inverse relationship between inflation and unemployment affected by monetary policy.
Step-by-step explanation:
The movements of employment and the price level are consistent with standard facts about the business cycle. During economic expansions, employment typically rises and the price level (inflation) tends to increase as demand for goods and services grows. Conversely, during recessions, employment tends to fall and the price level may stabilize or even decline due to reduced demand.
Cyclical unemployment fluctuates with the business cycle and is linked to the concept of wage rigidity. Wage rigidity prevents the labor market from reaching equilibrium where the quantity demanded of labor equals the quantity supplied at the current wage. Consequently, monetary policy that affects inflation also indirectly impacts employment.
The Phillips Curve model describes the tradeoff between inflation and unemployment in the short run, suggesting that with expansionary monetary policy, inflation may rise but unemployment usually falls, whereas with contractionary policy, inflation may fall while unemployment rises.