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Consider the following statements about Phillips Curve
1. It is a graphic curve which advocates a relationship between inflation and unemployment in an economy.
2. The curve suggests that higher the inflation, lower the unemployment and lower the inflation, higher the unemployment.
Which of these statements is/are correct?
- a)Both 1 and 2
- b)2 Only
- c)1 Only
- d)None of them
Correct answer is option 'A'. Can you explain this answer?
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Verified Answer
Consider the following statements about Phillips Curve1. It is a graph...
It is a graphic curve which advocates a relationship between inflation and unemployment in an economy.
As per the curve, there is a 'trade-off between inflation and unemployment, i.e., an inverse relationship between them.
The curve suggests that lower the inflation, higher the unemployment and higher the inflation, lower the unemployment.
Most Upvoted Answer
Consider the following statements about Phillips Curve1. It is a graph...
The correct answer is option 'A': 1 Only.
Explanation:
1. The Phillips Curve is a graphical representation of the relationship between inflation and unemployment in an economy. It was named after economist A.W. Phillips, who first observed this relationship in the 1950s.
2. The Phillips Curve suggests an inverse relationship between inflation and unemployment. According to the curve, when inflation is high, unemployment is expected to be low, and vice versa.
3. The curve is typically depicted as a downward sloping curve, with inflation on the y-axis and unemployment on the x-axis. This means that as inflation increases, unemployment decreases, and as inflation decreases, unemployment increases.
4. The explanation for this relationship is based on the idea of a trade-off between inflation and unemployment. According to the Phillips Curve, when there is high inflation, it indicates that the economy is operating at or beyond its full capacity, leading to a decrease in unemployment. Conversely, when there is low inflation or deflation, it suggests that the economy is operating below its full capacity, leading to higher unemployment.
5. It is important to note that the Phillips Curve is based on the assumption of a stable relationship between inflation and unemployment, known as the "expectations-augmented Phillips Curve." However, this relationship has been subject to criticism and empirical evidence has shown that it is not always valid in the long run.
In conclusion, the Phillips Curve is a graphical curve that illustrates the relationship between inflation and unemployment. It suggests an inverse relationship, where higher inflation is associated with lower unemployment and lower inflation is associated with higher unemployment. However, it is important to note that this relationship is not always observed in practice and has been subject to criticism.
Explanation:
1. The Phillips Curve is a graphical representation of the relationship between inflation and unemployment in an economy. It was named after economist A.W. Phillips, who first observed this relationship in the 1950s.
2. The Phillips Curve suggests an inverse relationship between inflation and unemployment. According to the curve, when inflation is high, unemployment is expected to be low, and vice versa.
3. The curve is typically depicted as a downward sloping curve, with inflation on the y-axis and unemployment on the x-axis. This means that as inflation increases, unemployment decreases, and as inflation decreases, unemployment increases.
4. The explanation for this relationship is based on the idea of a trade-off between inflation and unemployment. According to the Phillips Curve, when there is high inflation, it indicates that the economy is operating at or beyond its full capacity, leading to a decrease in unemployment. Conversely, when there is low inflation or deflation, it suggests that the economy is operating below its full capacity, leading to higher unemployment.
5. It is important to note that the Phillips Curve is based on the assumption of a stable relationship between inflation and unemployment, known as the "expectations-augmented Phillips Curve." However, this relationship has been subject to criticism and empirical evidence has shown that it is not always valid in the long run.
In conclusion, the Phillips Curve is a graphical curve that illustrates the relationship between inflation and unemployment. It suggests an inverse relationship, where higher inflation is associated with lower unemployment and lower inflation is associated with higher unemployment. However, it is important to note that this relationship is not always observed in practice and has been subject to criticism.
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Consider the following statements about Phillips Curve1. It is a graphic curve which advocates a relationship between inflation and unemployment in an economy.2. The curve suggests that higher the inflation, lower the unemployment and lower the inflation, higher the unemployment.Which of these statements is/are correct?a)Both 1 and 2b)2 Onlyc)1 Onlyd)None of themCorrect answer is option 'A'. Can you explain this answer?
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