Question

1. Economic data has shown that a relationship between an economy's Inflation rate and Unemployment rate does exist at times and does not exist at other times. What is this relationship called and provide a graph of the relationship? How (what tools) has the government attempted to manage this relationship?

please answer each part....

Answer 1

There usually exist a negative relationship in short run between inflation and unemployment rate which is called Philips curve while in long run there does not exist negative relationship because economy reach to their natural level of output where unemployment level is also at its natural level which makes vertical Philips curve.

Inflatio Long Run Philips Curve Short Run Philips Curve Unemployment

Government use fisacl policies to maintain this relation. They adopt expansionary fiscal policy which raise inflation rate by raising aggregate demand and reducing unemployment due to rise in output level while contractionary fiscal policy reduce inflation rate by reducing aggregate demand and raise unemployment due to fall in output level.