In the 1970s, it was fashionable amongpolicymakers (and sometimes still istoday) to use the Phillips Curve effect tofight unemployment. Discuss the short-and long-term effects of such a policywith the help of a graph.

Answered: In the 1970s, it was fashionable among…

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter16: Expectations Theory And The Economy

Section16.2: The Controversy Begins: Are There Really Two Phillips Curves?

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In the 1970s, it was fashionable among
policymakers (and sometimes still is
today) to use the Phillips Curve effect to
fight unemployment. Discuss the short-
and long-term effects of such a policy
with the help of a graph.

Expert Solution

Step 1

Meaning of Inflation:

The term inflation refers to the situation under which there is an excessive rise in the prices under economic activities, thus a hike in prices generally occurs due to when an economy faces downfall due to limited resources and scarcity.

Thus limited resources occur due to less production level and thus the quantity of supply gets decreases, thus as supply decreases it increases the price of that limited resource so high that people are unable to afford that commodity product and thus inflation occurs.

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