Question

1. Explain Phillips Curve & what shocks to the macroeconomy have caused the global financial crises?

Answer 1

The Phillips curve is an economic concept developed by A.W. Phillips starting that inflation and unemployment have a stable and inverse relationship.

Inflation which leads to more jobs and less unemployment. The Phillips curve have inflation and unemployment have inverse relationship. Higher inflation associate lower the employment.

The Phillips curve was a concept used to guide macroeconomics policy in the 20 th century,

This inflation with unemployment also called stagfation in 1970's. In other words stagfation is combination of slow economic growth with high unemployment and high inflation.

Full employment is the situation where all the labour or work force get work .or labour resources are being used in the most efficient way possible and high amount of skilled and unskilled labour that can be employed within an economy at any given time.

A financial shocks my be negative and positive but we discuss about financial crises that are given below:-

A financial shock is one that originated from the financial sector of the economy. A liquidity crisis in banking system, a stock market crash, unpredictable changes in monetary policy , or devaluation of currencies are the example of financial shocks.