Final answer:
The correct statement is that there is a short-run trade-off between inflation and unemployment, as indicated by option C. In the short run, as suggested by the Keynesian perspective, higher inflation can coexist with lower unemployment and vice versa. However, the neoclassical view points out that in the long run, represented by a vertical Phillips Curve, there is no trade-off between the two.
Step-by-step explanation:
In response to the student's question on the Phillips Curve, the true statement among the options provided is: C. Under normal conditions, there is a short-run trade-off between inflation and unemployment. This concept is derived from the Keynesian economic theory, which posits that when aggregate supply is upward sloping in the short run, it implies a downward sloping Phillips Curve. Hence, in the short run, there can be a trade-off where lower unemployment comes at the cost of higher inflation and vice versa.
Contrastingly, the neoclassical economic perspective illustrates that in the long run, the aggregate supply curve is vertical. This corresponds to a vertical Phillips Curve, meaning that there is no long-run trade-off between inflation and unemployment. Regardless of the inflation level, the unemployment rate in the long run will align with the natural rate of unemployment.
The long-run Phillips Curve is depicted as a vertical line at the natural rate of unemployment, indicating that any amount of inflation can correlate with the natural rate of unemployment, reaffirming that in the long run, inflation and unemployment are not trade-offs. This view was encapsulated by the renowned economist Milton Friedman, who made clear that the trade-off between inflation and unemployment is only ever temporary and not a permanent feature of an economy.