Explain the Phillips Curve concept and construct an example of the curve on the below graph.
What will be an ideal response?
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 in the horizontal range of the aggregate supply curve, unemployment will decline as real GDP rises without an inflationary effect. However, as aggregate demand continues to grow and the unemployment rate approaches full-employment, the price level and real GDP will increase. Finally, at the point of full capacity, only the price level will rise as potential real GDP has been achieved. See graph.
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Alfonso has noticed that increases in unemployment insurance claims are associated with recessions, and therefore he advocates limits on unemployment insurance so as to prevent recessions. Mary has noticed that most drug addicts once attended schools, and therefore she advocates getting rid of schools so as to prevent drug addiction
a. The reasoning of both Alfonso and Mary suffers from the omitted variable problem. b. The reasoning of both Alfonso and Mary suffers from the reverse causality problem. c. Alfonso's reasoning suffers from the reverse causality problem, and Mary's reasoning suffers from the omitted variable problem. d. Mary's reasoning suffers from the reverse causality problem, and Alfonso's reasoning suffers from the omitted variable problem.
Use the above table. If the marginal revenue product is $20, how many workers will the profit maximizing monopsonist hire?
A. 1 B. 2 C. 3 D. 4