Question

explain philips curve

Answer 1

Hi friend..


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.