Definition of term about The relationship between unemployment and inflation rates.
Answers
Explanation:
The relationship between inflation rates and unemployment rates is inverse. Graphically, this means the short-run Phillips curve is L-shaped. A.W
A positive correlation between inflation and unemployment creates a unique set of challenges for fiscal policymakers. Policies that are effective at boosting economic output and bringing down unemployment tend to exacerbate inflation, while policies that rein in inflation frequently constrain the economy and worsen unemployment.
Historically, inflation and unemployment have maintained an inverse relationship, as represented by the Phillips curve. Low levels of unemployment correspond with higher inflation, while high unemployment corresponds with lower inflation and even deflation. From a logical standpoint, this relationship makes sense. When unemployment is low, more consumers have discretionary income to purchase goods. Demand for goods rises, and when demand rises, prices follow. During periods of high unemployment, customers purchase fewer goods, which puts downward pressure on prices and reduces inflation.