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According to the Phillips Curve, what is the relationship between inflation and unemployment?
- a)Direct relationship
- b)Inverse relationship
- c)No relationship
- d)Constant relationship
Correct answer is option 'B'. Can you explain this answer?
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According to the Phillips Curve, what is the relationship between infl...
The Phillips Curve is a graphic curve that 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.
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According to the Phillips Curve, what is the relationship between infl...
Phillips Curve Relationship between Inflation and Unemployment
In the field of economics, the Phillips Curve illustrates the relationship between inflation and unemployment. The curve suggests that there is an inverse relationship between these two variables.
Explanation of Inverse Relationship
- The Phillips Curve theorizes that when inflation is high, unemployment tends to be low, and vice versa.
- This relationship is based on the idea that as the economy heats up and demand for goods and services increases, prices rise, leading to inflation.
- As a result, businesses expand and hire more workers, leading to a decrease in the unemployment rate.
- Conversely, when inflation is low, demand for goods and services decreases, leading to lower prices. This can result in businesses cutting back on production and laying off workers, causing an increase in the unemployment rate.
Implications for Monetary Policy
- The inverse relationship between inflation and unemployment has important implications for monetary policy.
- Central banks often use this relationship to guide their decisions on interest rates and other monetary policy tools.
- For example, if inflation is rising and unemployment is low, central banks may choose to increase interest rates to cool down the economy and prevent overheating.
- On the other hand, if inflation is low and unemployment is high, central banks may choose to lower interest rates to stimulate economic growth and reduce unemployment.
In conclusion, the Phillips Curve demonstrates the inverse relationship between inflation and unemployment, highlighting the complex interplay between these two important economic variables.
In the field of economics, the Phillips Curve illustrates the relationship between inflation and unemployment. The curve suggests that there is an inverse relationship between these two variables.
Explanation of Inverse Relationship
- The Phillips Curve theorizes that when inflation is high, unemployment tends to be low, and vice versa.
- This relationship is based on the idea that as the economy heats up and demand for goods and services increases, prices rise, leading to inflation.
- As a result, businesses expand and hire more workers, leading to a decrease in the unemployment rate.
- Conversely, when inflation is low, demand for goods and services decreases, leading to lower prices. This can result in businesses cutting back on production and laying off workers, causing an increase in the unemployment rate.
Implications for Monetary Policy
- The inverse relationship between inflation and unemployment has important implications for monetary policy.
- Central banks often use this relationship to guide their decisions on interest rates and other monetary policy tools.
- For example, if inflation is rising and unemployment is low, central banks may choose to increase interest rates to cool down the economy and prevent overheating.
- On the other hand, if inflation is low and unemployment is high, central banks may choose to lower interest rates to stimulate economic growth and reduce unemployment.
In conclusion, the Phillips Curve demonstrates the inverse relationship between inflation and unemployment, highlighting the complex interplay between these two important economic variables.
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According to the Phillips Curve, what is the relationship between inflation and unemployment?a)Direct relationshipb)Inverse relationshipc)No relationshipd)Constant relationshipCorrect answer is option 'B'. Can you explain this answer?
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According to the Phillips Curve, what is the relationship between inflation and unemployment?a)Direct relationshipb)Inverse relationshipc)No relationshipd)Constant relationshipCorrect answer is option 'B'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about According to the Phillips Curve, what is the relationship between inflation and unemployment?a)Direct relationshipb)Inverse relationshipc)No relationshipd)Constant relationshipCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for According to the Phillips Curve, what is the relationship between inflation and unemployment?a)Direct relationshipb)Inverse relationshipc)No relationshipd)Constant relationshipCorrect answer is option 'B'. Can you explain this answer?.
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