Question

The Phillips curve is the schedule showing the relationship between ?

• A. Aggregate supply and demand
• B. Total saving and investment
• C. The rate of unemployment and rate of inflation
• D. Demand for and supply of loanable funds

Hint:

Phillips Curve = Inverse relation between inflation and unemployment.

Answer 1

The Correct Option is C

Step 1: The Phillips Curve is an economic concept introduced by A.W. Phillips.
Step 2: It illustrates an inverse relationship between the rate of unemployment and the rate of inflation in an economy.
Step 3: Lower unemployment often comes with higher inflation, and higher unemployment tends to reduce inflation. \[ \boxed{\text{Unemployment vs. Inflation}} \]

Answer 2

Check what relationship each option describes and compare it to the actual definition of the Phillips curve.

1. Option 1 (Aggregate supply and demand): This relationship is shown by the AS-AD model, a separate macroeconomic tool, not the Phillips curve.
2. Option 2 (Total saving and investment): The saving-investment relationship belongs to national income equilibrium analysis, not the Phillips curve.
3. Option 3 (The rate of unemployment and rate of inflation): The Phillips curve, based on A.W. Phillips' empirical study, plots exactly this trade-off: as unemployment falls, wage/price inflation tends to rise, and vice versa.
4. Option 4 (Demand for and supply of loanable funds): This describes the loanable funds theory of interest rate determination, unrelated to the Phillips curve.

Only the unemployment–inflation trade-off matches the definition of the Phillips curve.

So, the correct answer is The rate of unemployment and rate of inflation.