Question

The government of South Africa decided to give unemployment people R 350.00 a month as a relief grant during the Covict 19 pandemic.Discuss using Phillips curve hypothesis if this grant could contribute to allowing higher inflation to create jobs

Answer 1

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Question:

Answer:

Phillips Curve Model:

It is a macroeconomic model that shows the relationship between inflation and unemployment. According to the Phillips curve when inflation increase unemployment decrease and vice-versa.

Here, the government of South Africa decided to give unemployment people R 350.00 a month as a relief grant during the Covict 19 pandemic. So, increasing government spending as a unemployment benefits during the COVID-19 crisis will increase income level of people. Increasing income level will increase spendable income of people and people will spend more. So, increasing spending/consumption will increase AD and increasing AD will increase output (real GDP) anf price level (inflation). So, accoding to the Phillips curve model, increasing inflation will decrease unemployment in South Africa.

Graph:

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