Question

. Explain the relationship suggested by the Phillips curve. How might governments exploit this relationship?

Answer 1

Ans) Phillips curve reflects the tradeoff between inflation and unemployment in the short run. The Phillips curve shows the negative relationship between inflation and unemployment because some price are slow to adjust.

government can exploit this relationship by using the following policy instruments

1) change in the government spending or by increasing or decreasing the amount of taxes.

2) in the short run, policy makers can influence inflation and unemployment In the economy