Question

1

What typically happens to the inflation rate when unemployment falls to very low
levels?
O
A
It will rise or fall but not with the unemployment rate.
OB It stays the same.
C It falls.
C
D It rises.

Answer 1

Answer: A

Explanation: There could be a negative relationship between unemployment and inflation but this is not always true because wages are the largest components of prices, inflation (rather than wage changes) could be inversely linked to unemployment as proved by the Philip's curve. In practice, there could be a situation called stagflation where unemployment and inflation rise or fall at the same time.