Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Higher unemployment leads to higher inflation
B
Lower unemployment leads to higher inflation
C
There is no relationship between unemployment and inflation
D
Higher inflation leads to lower unemployment rates
Understanding the Answer
Let's break down why this is correct
Answer
The Phillips curve shows a relationship between unemployment and inflation, suggesting that when unemployment is low, inflation tends to be high. During an inflationary gap, the economy is producing more than its potential, leading to higher demand for goods and services. This increased demand can push prices up, causing inflation to rise. For example, if a company hires many workers to meet high demand, it might pay them more, leading to higher wages and, in turn, higher prices for consumers. Thus, in an inflationary gap, we typically see low unemployment alongside increasing inflation.
Detailed Explanation
When more people have jobs, they spend more money. Other options are incorrect because This answer suggests that more joblessness leads to rising prices; This choice claims there is no link between job rates and prices.
Key Concepts
unemployment rate
Phillips curve
Topic
Inflationary Gaps and Unemployment
Difficulty
medium level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.