What is the relationship between inflation and unemployment?
An example of an AI chatbot conversation about inflation and unemployment dynamics.
What is the relationship between inflation and unemployment?
The relationship between inflation and unemployment is often described by the Phillips Curve, which suggests that as inflation rises, unemployment tends to fall, and vice versa.
Can you explain the Phillips Curve in more detail?
Sure! The Phillips Curve illustrates an inverse relationship between inflation and unemployment, indicating that higher inflation can lead to lower unemployment rates in the short run.
Are there any exceptions to this relationship?
Yes, during stagflation, which is a period of high inflation and high unemployment, the Phillips Curve does not hold, challenging the traditional view.
How do central banks respond to inflation?
Central banks often respond to inflation by raising interest rates to cool down the economy and reduce spending, which can help lower inflation.
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