2. Discuss the following statements. a. The Phillips curve implies that when an

Question

2. Discuss the following statements. a. The Phillips curve implies that when an economy is operat- ing below full capacity, a significant increase in aggregate demand is likely to cause a reduction in unemployment and an increase in inflation. b. Monetary policy is quite important in determining the level of employment because the key connection or link between interest rate increases and lower price inflation is the pace at which wages are apt to increase during tight labor markets. c. During the global financial crisis when the price level was negative, employers resisted cuts in wages and salaries.

Explanation / Answer

a)

b)

c)

Usually, it is seen that wages and salaries dip during the phase of economic recession but when employers resist the fall in wage and salaries, suggest that workers are critical for firms. these workers were highly skilled and likely to contribute towards the growth of organisation mammothly.

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