Question

Explain the concept of philips curve. Discuss how aggregate supply and philips curve are related to each other?

Answer 1

Concept of Philip Curve:

Philip Curve explain the relationship between inflation and unemployment. Philip Curve is an economic term which has been explained by A.W. Philips. Philip Curve theory explain about the economic growth, inflation, unemployment. It states that inflation comes hand in hand with economic growth which should have to create more job and less unemployment.

Philip Curve states that change in unemployment have the predictable effect on inflation. Unemployment and inflation has inverse relationship between them and it is being shown via downward sloping concave curve. This curve has inflation on it Y-axis and on X -axis unemployment. Theory of Philip curve state that higher the inflation in economy, unemployment will be lower compared to inflation.

- Aggregate supply explain the short run relationship between price level and employment where price level rise will increases the employment. While Philip curve states the relationship between inflation and unemployment.