| Consider the following statement regarding Phillips curve. |
| 1. The curve shows the relationship between the inflation rate and the unemployment rate. |
| 2. There is a positive relation between the rate of inflation and the unemployment rate. |
| 3. An unexpected expansion of the nominal money supply or decline in the demand for money will increase the long-run equilibrium price level. |
| Which of the statements given above are correct? |
A) 1 and 2
B) 1 and 3
C) 2 and 3
D) All of these
Correct Answer: B
Solution :
[b] In economics, the Phillips curve is a historical inverse (i.e. negative) relationship between rates of unemployment and corresponding rates of inflation that result in an economy. Stated simply, decreased unemployment, (i.e. increased levels of employment) in an economy will correlate with higher rates of inflation.
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