What does the Phillips Curve illustrate about inflation and unemployment?

The Phillips Curve represents the inverse relationship between inflation and unemployment, suggesting that as unemployment decreases, inflation tends to increase, and vice versa. This is grounded in the idea that when the economy is operating at or near full employment, businesses may raise prices to attract scarce labor, leading to higher inflation. Conversely, when unemployment is high, there is less upward pressure on wages and prices, resulting in lower inflation.

Option C captures this relationship accurately, as it describes the phenomenon where lower unemployment rates can lead to higher inflation. This is consistent with the empirical evidence and theoretical underpinning of the Phillips Curve, indicating that policymakers face a trade-off between inflation and unemployment in the short run.

The other options do not align with the established understanding of this economic concept; they misrepresent the nature of the relationship as defined by the Phillips Curve.