Question

Why is the Phillips curve negatively sloped?

• A. The bargaining power of the labour unions increases with rise in unemployment.
• B. The bargaining power of the labour unions decreases with rise in unemployment.
• C. The bargaining power of the capitalists decreases with rise in unemployment.
• D. The bargaining power of the capitalists increases with rise in unemployment.

Hint:

How is bargaining power affected by unemployment?

Answer 1

The Correct Option is B

The Phillips curve demonstrates an inverse correlation between inflation and unemployment.

Rising unemployment diminishes labor unions' bargaining power, which in turn lowers wages and inflation.

Hence, the correct answer is (b).