Question

According to the equation for the Phillips curve, if nominal wages and labor productivity both increase by 3%, then the inflation rate _____ and unemployment _____.

Answer 1

Answer:

Increases, decreases

Explanation:

According to the equation for the Phillips curve, if nominal wages and labor productivity both increase by 3%, then the inflation rate increases and unemployment decreases.

The Phillips curve is an economic concept developed by A. W. Phillips stating that inflation and unemployment have a stable and inverse relationship. The theory claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment.

Therefore as given in the scenario, wage increase signifies economic growth which will lead to increase in inflation and a decrease in unemployment