Question

Q. Consider the following statements in reference to the Phillips Curve:

Which of the statements given above is/are correct?

• A. 1 only
• B. 2 only
• C. Both 1 and 2
• D. Neither 1 nor 2

Answer 1

The correct option is A 1 only

Explanation:

• Statement 1 is correct: The inverse relationship between the unemployment rate and inflation when graphically charted is called the Phillips curve.
• According to the Phillips curve, inflation and unemployment are inversely related. Inflationary pressures are linked to decreased unemployment, and vice versa.
• As a result, high levels of employment can only be attained when inflation is high. The Phillips curve's conclusions strongly influence policies aimed at promoting economic growth, increased employment, and long-term development.
• Statement 2 is incorrect: Stagflation occurs when an economy experiences stagnant economic growth, high unemployment and high price inflation. This scenario, of course, directly contradicts the theory of the Phillips curve.