ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The Phillips Curve describes the relationship between inflation and unemployment: Inflation is higher when unemployment is low and lower when unemployment is high.

Detailed explanation-2: -Positive supply shock or an increase in aggregate supply will lead to a leftward shift in the short-run Phillips curve or lower prices and lower unemployment.

Detailed explanation-3: -The Phillips Curve is like the aggregate supply curve in that it depicts the relationship between prices and output. But the Phillips Curve looks at the rate of change in prices (inflation) as the price axis and it looks as the unemployment rate (which varies inversely with output) as the quantity axis.

Detailed explanation-4: -Philips curve states an inverse relationship between the level of unemployment and rate of inflation. Greater economic growth results in more jobs and higher disposable income which increases the rate inflation and lowers unemployment. Reverse is true in recessionary periods and hence the curve.