Question

Which one of the following is correct about the Philips Curve of an economy?

• A. An inverse relationship between the rate of unemployment and the rate of inflation
• B. A directly proportionate of the rate of unemployment and the rate of the inflation
• C. An inverse relationship between the rate of GDP growth and the rate of inflation
• D. A directly proportionate of the rate of unemployment and the rate of unemployment

Answer 1

The correct option is A An inverse relationship between the rate of unemployment and the rate of inflation

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.