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Consider the following statements
1. Phillips curve is direct relation of unemployment and inflation.
2. It explains deflation and hyperinflation much better than stagflation
Which of the above is/are NOT correct?
  • a)
    Only 1
  • b)
    Only 2
  • c)
    Both
  • d)
    None
Correct answer is option 'C'. Can you explain this answer?
Verified Answer
Consider the following statements1. Phillips curve is direct relation ...
Inverse relation between unemployment and inflation- Phillips curveStagflation is the combination of high unemployment and economic stagnation withinflation.
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Consider the following statements1. Phillips curve is direct relation ...


Incorrect Statements Regarding Phillips Curve:

Unpacking the given statements reveals the inaccuracies in each:

- Statement 1: Phillips curve actually depicts an inverse relationship between unemployment and inflation. As unemployment decreases, inflation tends to rise, and vice versa. Therefore, the first statement is incorrect.

- Statement 2: While the Phillips curve is effective in explaining the trade-off between inflation and unemployment, it is not particularly suited to explain deflation or hyperinflation. These extreme economic conditions are influenced by a myriad of complex factors beyond the scope of the Phillips curve. Consequently, the second statement is also incorrect.

Therefore, the correct answer is option C: Both.

In conclusion, understanding the Phillips curve can provide valuable insights into the dynamics between inflation and unemployment, but it is essential to recognize its limitations in addressing scenarios of deflation and hyperinflation.
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Consider the following statements1. Phillips curve is direct relation of unemployment and inflation.2. It explains deflation and hyperinflation much better than stagflationWhich of the above is/are NOT correct?a)Only 1b)Only 2c)Bothd)NoneCorrect answer is option 'C'. Can you explain this answer?
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