Economics Phillips Curve Questions
The Phillips Curve is a concept in economics that illustrates the relationship between inflation and unemployment. In the context of the wage-price spiral theory, the Phillips Curve suggests that there is a trade-off between inflation and unemployment. According to this theory, when unemployment is low, wages tend to rise as workers have more bargaining power, leading to increased consumer spending and higher demand for goods and services. This increased demand can then lead to higher prices, resulting in inflation. Conversely, when unemployment is high, wages tend to remain stagnant or even decrease, leading to lower consumer spending and decreased demand, which can result in lower prices or deflation. Therefore, the Phillips Curve suggests that there is an inverse relationship between inflation and unemployment, indicating that policymakers face a trade-off between these two variables when formulating economic policies.