Final answer:
It is true that short-run economic outcomes can be expressed as output and price level or unemployment and inflation (a). The Phillips Curve exemplifies the observed trade-offs between these variables. While short-run effects are influenced by monetary policy and wages, long-run outcomes are governed by potential GDP and the natural rate of unemployment.
Step-by-step explanation:
The statement that short-run outcomes in the economy can be expressed in terms of output and the price level, or in terms of unemployment and inflation, is true. The Phillips Curve illustrates the short-run tradeoff between inflation and unemployment, showing that when inflation is higher, unemployment tends to be lower, and vice versa. This occurs because expansionary monetary policy can lower unemployment by increasing aggregate demand, which can lead to higher inflation due to increased spending and demand for goods. Conversely, contractionary monetary policy can reduce inflation but may lead to higher unemployment as demand decreases.
In the short run, changes in aggregate demand can affect both output levels and price levels, leading to fluctuating levels of unemployment and inflation. However, in the long run, the economy is expected to revert to potential GDP, and the natural rate of unemployment as determined by the long-run aggregate supply. Hence, short-run fluctuations in output and price levels or unemployment and inflation are temporary, influenced by factors such as wages, fiscal and monetary policy.