Which of the following statement(s) is / are true with respect to Phillips Curve ? 1. It shows the trade-off between unemployment and inflation 2. The downward sloping curve of Phillips Curve is generally held to be valid only in the short run 3. In the l

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Q: 58 (CDS-I/2016)

Which of the following statement(s) is / are true with respect to Phillips Curve ?
1. It shows the trade-off between unemployment and inflation
2. The downward sloping curve of Phillips Curve is generally held to be valid only in the short run
3. In the long run, Phillips Curve is usually thought to be horizontal at the non-accelerating inflation rate of unemployment (NAIRU)
Select the correct answer using the code given below :

question_subject: 

Science

question_exam: 

CDS-I

stats: 

0,23,108,35,13,23,60

keywords: 

{'phillips curve': [0, 0, 0, 1], 'curve': [0, 0, 0, 1], 'inflation rate': [0, 0, 0, 3], 'inflation': [0, 1, 0, 3], 'unemployment': [0, 0, 0, 1]}

Option 1 states that the Phillips Curve shows the trade-off between unemployment and inflation. This statement is true. The Phillips Curve is an economic concept that represents the relationship between inflation and unemployment. It suggests that when unemployment is low, inflation tends to be high and vice versa. Therefore, there is a trade-off between the two variables.

Option 2 states that the downward-sloping curve of the Phillips Curve is generally held to be valid only in the short run. This statement is also true. The original Phillips Curve proposed by economist A.W. Phillips in 1958 showed a negative relationship between unemployment and wage inflation in the short run. However, in the long run, the relationship between these variables is not as clear. Other factors such as productivity growth and inflation expectations can influence the long-term behavior of the Phillips Curve.

Option 3 states that in the long run, the Phillips Curve is usually thought to be horizontal at the non-accelerating inflation rate of unemployment (NAIRU). This statement is true. In the long run, economists believe that there is a natural rate of unemployment below which inflation starts to accelerate. This natural rate is known as the NAIRU. At the NAIRU, the Phillips Curve is thought to be horizontal, indicating that