Question

Explain Tobin’s modified Phillips curve.​

Answer 1

Answer:

What is the meaning of Tobin's modified Philips

curve

Answer 2

TOBIN’S MODIFIED PHILLIPS CURVE.

• Tobin's modified Phillips curve suggests an inverse relationship between inflation and unemployment.
• It incorporates the effect of expected inflation, which shifts the curve outwards, as expected inflation increases, unemployment falls.
• This reflects the fact that workers will be more willing to accept lower wages if they know they won't be offset by higher prices caused by inflation.
• Expected inflation also increases aggregate demand, leading to a lower unemployment rate.
• It posits that higher inflation leads to lower economic growth, whereas lower inflation has a positive impact on economic growth.
• Hence, it argues that there is ultimately a trade-off between price stability and optimal economic performance.

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