Final answer:
The 1970s and 1980s saw both unemployment and inflation increase, which contradicted the previously accepted stable Phillips Curve. This phenomenon showed that the Phillips Curve could shift, negating the stable tradeoff between inflation and unemployment that had been assumed. Hence, option (A) is correct.
Step-by-step explanation:
The increases in unemployment and inflation during the 1970s and early 1980s challenged the idea of a stable Phillips Curve. The Phillips Curve originally suggested a tradeoff between inflation and unemployment, where policymakers could choose a balance between lower unemployment with higher inflation, or higher unemployment with lower inflation. However, during the 1970s and early 1980s, the curve shifted, illustrating that both unemployment and inflation could rise simultaneously, upending the notion of this stable tradeoff.
Furthermore, Keynesian macroeconomics suggests that in the face of a recession, expansionary fiscal policy, such as tax cuts or increased government spending, could shift the aggregate demand curve to the right, potentially restoring full employment and potential GDP. However, these measures could also lead to shifts in the Phillips Curve over time.