ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Stagflation describes a combination of high inflation and economic stagnation as reflected by a slow growth rate and high unemployment. The stagflation of the 1970s marked the U.S. economy’s worst performance since the Great Depression.

Detailed explanation-2: -Phillips showed a negative correlation between the rate of unemployment and the rate of inflation – the years with high unemployment showed low inflation, and the years with low unemployment experienced high inflation.

Detailed explanation-3: -Unemployment increases during business cycle recessions and decreases during business cycle expansions (recoveries). Inflation decreases during recessions and increases during expansions (recoveries).

Detailed explanation-4: -An increase in the money supply increases inflation and permanently decreases unemployment. In the long run, the unemployment rate is independent of inflation and the Phillips curve is vertical at the natural rate of unemployment. When actual inflation exceeds expected inflation, unemployment exceeds the natural rate.