📚 Learning Guide
Phillips Curve Insights
medium

How does cost-push inflation affect the Phillips Curve relationship between inflation and unemployment?

Master this concept with our detailed explanation and step-by-step learning approach

Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
Explore Topic

Choose the Best Answer

A

It shifts the Phillips Curve to the left

B

It shifts the Phillips Curve to the right

C

It has no effect on the Phillips Curve

D

It makes the relationship linear

Understanding the Answer

Let's break down why this is correct

Answer

Cost-push inflation occurs when the costs of production for businesses rise, leading them to increase prices for consumers. This type of inflation can shift the Phillips Curve, which originally suggests that lower unemployment comes with higher inflation. When costs rise, businesses may reduce their workforce to manage expenses, causing unemployment to increase even as inflation rises. For example, if the price of oil skyrockets, transportation and manufacturing costs go up, leading to higher prices for goods and potentially more layoffs. This means that instead of the usual trade-off where lower unemployment leads to higher inflation, both inflation and unemployment can rise together, complicating economic policy.

Detailed Explanation

Cost-push inflation happens when prices rise due to increased costs for businesses. Other options are incorrect because Some might think that higher costs would lower inflation; It's a common mistake to think nothing changes.

Key Concepts

inflation
cost-push inflation
Topic

Phillips Curve Insights

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.