Question

What do these graphs indicate about the relationship

between employment levels and prices during economic
cycles?

a. There is no link between prices and unemployment.
b. Rising unemployment rates drive prices higher.
c. Falling prices drive unemployment rates lower.
d. As unemployment rates rise, average prices fall.

Answer 1

The graphs indicate that as unemployment rates rise, average prices fall. This relationship is known as the Phillips curve.

Step-by-step explanation:

The graphs indicate that as unemployment rates rise, average prices fall. This relationship is known as the Phillips curve, which suggests an inverse relationship between unemployment and inflation. When unemployment is high, there is less demand for goods and services, leading to lower prices.

For example, during recessions, when unemployment rates are high, businesses may lower their prices to attract customers and stimulate demand. On the other hand, during economic expansions when unemployment is low, businesses may raise their prices due to increased demand.

Therefore, option d, 'As unemployment rates rise, average prices fall,' accurately describes the relationship between employment levels and prices during economic cycles.