Question

 Based on your understanding of the Phillips curve, is it possible for the unemployment rate to increase while inflation increases?  Explain.

Answer 1

During the period of stagnation, the inflation as well the rate of employement increases at the same time because Philip curve shift upward and in the right direction.

The detailed explanation is given in the attached image where I have tried to explain the same with the help of a graph.

.CM) can co Pi 2 Inflation Patery So, we conclude during stagflation it does not behovs ។ 3 2 1 - 2 to cards the sigh Philip Curve In the Normal Scenario and in Stogflation (N2) reswally Diagram (I) Unemployment Rote / In normal scenario Phalip curve shows an inverse relation betcusen Limampaloyment rate and enflation Aute But, during stagflation, the firm typically face a suppily Side shock which leads to fall in productivity. cos depicted in AD Ve As Graph balone ) Diagram (E) So, the equilibrium poire moves foram to Due to this shifting of Aggregate supply curve, the prices demand decreases. Due to this decreased demand production is also decreased, that affects the cmemployeront sute directly and it whereases abas tically. So, inflation as icell as the enemployment increases at the same time. So, in Diagram (I), the philip cative shift upwards and AS, ( Picha LT) AS, (I) AD Boty CS Scanned with CamScanner

Answer 2

Answer is NO reasoning is given below-

In the graphs below we can see graph A represents philips curve- showing a inverse relation between unemployment and wages. While graph B shows a direct relation between inflation and wages

Now, suppose if unemployment rate increases then wages will fall according to graph A and now In graph B if wages fall/ decrease then inflation will also fall due to direct relation between them.

hence, prooved