Question

Explain in detail analysis phillips curve with diagram

Answer 1

Explanation:

The Phillips curve given by A.W. ... Phillips shows that there exist an inverse relationship between the rate of unemployment and the rate of increase in nominal wages. A lower rate of unemployment is associated with higher wage rate or inflation, and vice versa.

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Answer 2

ANSWER::

The Phillips curve given by A.W. Phillips shows that there exist an inverse relationship between the rate of unemployment and the rate of increase in nominal wages.

A lower rate of unemployment is associated with higher wage rate or inflation, and vice versa. In other words, there is a tradeoff between wage inflation and unemployment.

Reason: during boom, demand for labour increases. Due to greater bargaining power of the trade union, wage increases.

Thus, decrease in unemployment leads to increase in the wage. But when wage increases, the firms cost of production increases which leads to increase in price. Therefore it is also called wage inflation, that is, decrease in unemployment leads to wage inflation.

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