From the following, who first examined the close negative relationship between the unemployment rate and the output ratio?
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1 mark, −0.333MacroeconomicsInflation, unemployment and the Phillips curveOkun's law and the output gapEasyabout 1 min
IIT JAM 2022 Question 7: Inflation, unemployment and the Phillips curve
Answer and worked solution
Answer: (C)
The negative relationship between the unemployment rate and the deviation of output from potential is Okun's law, formulated by Arthur M. Okun.
The answer is (C). Phillips is associated with the unemployment-inflation relationship, a different pairing.
The trap: (A) Alban W. Phillips
The Phillips curve also links unemployment to another macro variable (inflation), which makes (A) a tempting but incorrect choice for the output-unemployment relationship.
Inflation, unemployment and the Phillips curve has come up 106 times in 7 exams since 2006.
What this question tests
This question is on Okun's law and the output gap, part of Inflation, unemployment and the Phillips curve in Macroeconomics.
The link between output growth and unemployment, and the gap between actual and potential output.
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Question from the IIT JAM 2022 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.