ECONOMICS
INFLATION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A when a high percentage of the increase in income is saved
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B when the economy reaches its production possibility curve
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C when the jobs created are unskilled
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D when the newly employed buy mainly imported goods
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Detailed explanation-1: -Phillips curve demonstrates the relationship between the rate of inflation with the rate of unemployment in an inverse manner. If levels of unemployment decrease, inflation increases.
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: -How is PP curve affected by unemployment? When there is unemployment, the maximum that an economy can produce does not change. So there is almost no effect on position of PP curve. The only thing is that economy produces somewhere below the curve.
Detailed explanation-4: -The Phillips curve states that inflation and unemployment have an inverse relationship. Higher inflation is associated with lower unemployment and vice versa. The Phillips curve was a concept used to guide macroeconomic policy in the 20th century, but was called into question by the stagflation of the 1970s.