Explain the Phillips Curve concept and construct an example of the curve on the below graph.

Question

Quizplus · Accepted Answer

The Answer is The Phillips Curve concept shows a stable inverse relationship between the rate of unemployment and the rate of inflation.It is based on the idea that as aggregate demand increases when real GDP is relatively low, unemployment will decline and real GDP will rise with little or no inflationary effect.However, as aggregate demand continues to grow and the unemployment rate approaches full-employment, the price level and real GDP will increase.

Explain the Phillips Curve Concept and Construct an Example of the Curve