ECONOMICS
INFLATION
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
A Global competition prevented firms passing on higher costs.
|
|
|
B Increased spending on imports had lowered the exchange rate.
|
|
|
C There was a low level of spare capacity in the economy.
|
|
|
D Wage rates had increased by more than labour productivity
|
Detailed explanation-1: -Consider a recession, a period of low economic activity. With lower demand for goods and services, firms start laying off workers and at the same time refrain from raising prices. So unemployment rises and inflation falls during recessions.
Detailed explanation-2: -Through this graph of the Phillips Curve, it is quite evident that the inverse relationship between inflation and unemployment is a downward-sloping curve with inflation on the Y-axis and unemployment on the X-axis. In layman’s words, increasing inflation leads to decreasing unemployment and vice versa.
Detailed explanation-3: -Why Unemployment Rises During a Recession. Because a recession is a slowdown in economic activity and labor is a key economic input, along with capital, it is logical that unemployment would rise as output (what companies make and sell) declines as companies making less and selling less need fewer employees.
Detailed explanation-4: -The relationship between economic growth and unemployment shows that there is a high correlation between the economic growth rate and the decrease in unemployment rates. An increase in the growth rate increases the employment rate or decreases the unemployment rate.