Question : The Phillips curve shows the relationship between:
Option 1: Inflation and unemployment
Option 2: GDP and inflation
Option 3: GDP and unemployment
Option 4: Interest rates and inflation
Correct Answer:
Inflation and unemployment
Solution : The correct answer is (a) Inflation and unemployment.
The Phillips curve is an economic concept that suggests an inverse relationship between the rate of inflation and the rate of unemployment in an economy. According to the Phillips curve, when unemployment is low, inflation tends to be high, and vice versa.
The original Phillips curve, proposed by economist A.W. Phillips, observed this relationship in the data for the United Kingdom in the 1950s and 1960s. It suggested that there is a trade-off between inflation and unemployment: as unemployment decreases, inflation increases, and as unemployment increases, inflation decreases.
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