Management Notes

Management Notes

Reference Notes for Management
Phillip’s curve shows the relationship between the rate of

Phillip’s curve shows the relationship between the rate of

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Phillip’s curve shows the relationship between the rate of

    1. Unemployment and output growth
    2. Unemployment and increase in money wages
    3. Employment and inflation
    4. All of the above

Correct Answer: Unemployment and increase in money wages

 Answer Explanation

In economics, the Phillips curve refers to the dynamic relationship between unemployment and wage inflation. “Unemployment and an increase in money wages” captures the essence of the Phillips curve, shedding light on the intricate relationship between these two vital economic indicators. Now let’s take a closer look at the Phillips curve:

A Phillips curve indicates a negative correlation between unemployment rates and increases in money wages. In essence, as unemployment decreases (indicating higher employment levels), upward pressure is exerted on wages. During periods of high unemployment, wage pressures tend to ease due to the increased bargaining power of workers in a more competitive labor market. Conversely, when unemployment is low, wage pressures tend to ease.

In general, employers compete for a limited pool of available workers as the labor market becomes more competitive with lower unemployment, resulting in higher wage demands. As a result, businesses may have higher production costs. This, in turn, can lead to an overall increase in consumer prices, which is what inflation is all about.

Why the other options are not correct

a. Unemployment and output growth:

In spite of the correlation between unemployment and output growth, the Phillips curve emphasizes unemployment as being related to wage inflation. In this article, unemployment and economic growth are not directly addressed. Because of these reasons this option is incorrect.

c. Employment and inflation:

The Phillips curve emphasizes the intricate tradeoff between unemployment and wage inflation, even though employment and inflation are interconnected in a broader economic context. The correlation between overall employment levels and inflation is not directly shown. So, this option is not the correct answer.

d. All of the above:

Despite the fact that the Phillips curve has implications for unemployment, employment, and inflation, it is important to acknowledge that its core emphasis is on wage inflation and unemployment. However, the Phillips curve serves as a specific tool for analyzing the relationship between unemployment and wages since these other economic factors can also be influenced by these dynamics. Only option (b) is the correct answer so, all of the above becomes an incorrect answer.

Conclusion

The Phillips curve provides valuable insights into the intricate relationship between unemployment and the rate of increase in money wages. The understanding of this relationship allows policymakers and economists to formulate monetary and fiscal policies in a way that strikes a balance between full employment and price stability. The Phillips curve illustrates the complex trade-offs that characterize macroeconomic management, guiding efforts to deal with unemployment and inflation.

Which of the following is phenomenon that leads to Hyperinflation?

Bibisha Shiwakoti
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