Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
An economy experiences a decrease in unemployment as inflation rises due to increased consumer spending.
B
A country lowers taxes, leading to both higher unemployment and lower inflation.
C
A sudden increase in oil prices causes inflation to rise while unemployment also decreases.
D
An economic recession leads to a significant drop in inflation and a rise in unemployment.
Understanding the Answer
Let's break down why this is correct
Answer
The Phillips Curve shows the relationship between inflation and unemployment, suggesting that when one goes down, the other tends to go up. For example, if a country has low unemployment because many people are working, businesses may raise wages to attract workers. This increase in wages can lead to higher spending, which can push prices up, causing inflation. On the other hand, if many people are unemployed, businesses may lower prices to attract customers, leading to lower inflation. So, the Phillips Curve helps us understand how these two economic factors can influence each other in the economy.
Detailed Explanation
The Phillips Curve shows that when unemployment goes down, inflation often goes up. Other options are incorrect because This option suggests that lowering taxes leads to higher unemployment, which is opposite to what usually happens; Here, rising oil prices cause inflation, but unemployment decreases.
Key Concepts
Phillips Curve
Inflation and Unemployment relationship
Aggregate Demand shifts
Topic
Phillips Curve Insights
Difficulty
easy 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.