Question : The Phillips curve shows the relationship between:
Option 1: Inflation and unemployment
Option 2: Aggregate demand and aggregate supply
Option 3: Investment and saving
Option 4: Government expenditure and taxation
Correct Answer:
Inflation and unemployment
Solution : The correct answer is (a) Inflation and unemployment
The Phillips curve is a graphical representation of the inverse relationship between the inflation rate and the unemployment rate in an economy. It suggests that there is a trade-off between inflation and unemployment in the short run. According to the Phillips curve, when the unemployment rate is low, inflation tends to be higher, and when the unemployment rate is high, inflation tends to be lower.
The Phillips curve is named after economist A.W. Phillips, who first observed this relationship in the mid-20th century. It has since been a topic of significant research and discussion in macroeconomics.
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