I’m planning to take the Certified Public Accounting Exam next month(first time taking it)- for the Business Environments and Concepts part of the exam. I’m using a few sources to study- and one I used was www.cpareviewforfree.com .
If you take a practice exam on that site for the Business Environment and Concepts section- I ran across a question regarding unemployment and the inflation rate. I got it wrong because the correct answer is supposed to be that as Unemployment falls the inflation rate rises- and it cites the Phillips Curve as proof. Hasn’t the Phillips Curve been debunked? I e-mailed the people at that website about it(no response yet)- but if the actual CPA exam does include different economic fallacies- would there be any way to challenge them? Or should I just suck it up and go along with what they believe to be true.
The Phillips curve is correct in the short run because ever increasing inflation will increase wages and employment as long as the new inflation is not expected. In the long run, following this policy is bound to lead to hyperinflation unless you allow a severe correction to occur.
Keep in mind that the CPA exam like any other licensing exam is from an organization ultimately funded by tax payer money. So it is a government exam and as such does not need to be factual. So just pass the exam and if you want to be critical then do so when you have the title CPA after your name.
Ok so then what the Phillips Curve is saying is that higher inflation can lead to (temporary)lower unemployment. But does it work the other way around like how that question was formed? Where lower unemployment leads to higher inflation?