A 1% increase in real growth,ceteris paribus,_____ inflation by _____.
A) increases;1%
B) increases;2%
C) decreases;1%
D) decreases;2%

Question

Quizplus · Accepted Answer

According to the Phillips curve, there is an inverse relationship between inflation and unemployment. When real growth increases, unemployment decreases, resulting in higher demand for goods and services. This higher demand pushes up the price level, leading to an increase in inflation. However, the relationship between growth and inflation is not straightforward, and other factors such as productivity, cost of production, and monetary policy also play a role. As such, a 1% increase in real growth may not necessarily result in a 1% increase in inflation, but it is likely to lead to a small decrease in inflation. Therefore, option C is the best choice since it implies that real growth and inflation have an inverse relationship.

A 1% Increase in Real Growth,ceteris Paribus,_____ Inflation by _____

A 1% Increase in Real Growth,ceteris Paribus,_ Inflation by _