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Chapter 25: Q. 13 (page 623)

What tradeoff does a Phillips curve show?

Short Answer

Expert verified

A Phillips curve shows the tradeoff among joblessness and expansion in an economy.

Step by step solution

01

Definition of Philip curve

The Phillips curve was created by A .W. Phillips, and is a concept in economics which states that unemployment and inflation have a correlation, which is in nature -- an inverse relationship.

02

Explanation

This means inflation occurs when economic growth occurs-which leads to more jobs - meaning lower unemployment. The Phillips bend shows a compromise among expansion and joblessness. Rising of inflation leads to a decrease in unemployment, and vice-versa.

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Most popular questions from this chapter

Return to the table from the Economic Report of the President in the earlier Work It Out feature titled “The Phillips Curve for the United States.” How would you expect government spending to have changed over the last six years?

Does it make sense that wages would be sticky downwards but not upwards? Why or why not?

In the Keynesian framework, which of the following events might cause a recession? Which might cause

inflation? Sketch AD/AS diagrams to illustrate your answers.

a. A large increase in the price of the homes people own.

b. Rapid growth in the economy of a major trading partner.

c. The development of a major new technology offers profitable opportunities for business.

d. The interest rate rises.

e. The good imported from a major trading partner become much less expensive.

What is the Keynesian prescription for recession? For inflation?

Name some economic events not related to government policy that could cause aggregate demand to shift.
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