Phillips Curve: Must Know Concept Notes for RBI Grade B Exam

By Amrit Gouda|Updated : September 27th, 2022

The RBI Grade B exam 2022 includes a section on Economics. It is the most important section for RBI Grade B aspirants. You need to prepare for this section as early as possible to remain ahead in the competition.

You can clear the RBI Grade B exam if you can manage the Economics section with confidence and ease. Today we will be discussing one important part of the ESI section of RBI Grade B i.e the Phillips Curve.

Table of Content

What is Phillips Curve?

  • The Phillips Curve is an economic concept developed by A.W. Phillips in 1958.
  • Phillips Curve describes the relationship between inflation and unemployment in an economy.
  • Inflation is defined by the increase in the average price level of goods and services over time. When there is inflation, the value of money falls. A low inflation rate indicates that the average price of goods would not rise as high.
  • Unemployment exists when someone is actively seeking a job but is unable to find any despite their willingness to accept the going market wage rate.
  • The Phillips Curve states that there is an inverse relationship between inflation and unemployment which means, if unemployment decreases, inflation will increase, and vice versa. For example, after the economy has just been in recession, the unemployment level will be fairly high. This will mean that there is a labor surplus.
  • As the economy has just started growing, the aggregate demand (AD) will increase and therefore leading to an increase in employment. In the beginning, there will be little pressure for a rise in wages. However, as the economy grows faster and more people are employed, wages will start rising slowly.
  • This will increase the firm’s cost of production and the high costs are usually passed on to the customers in the form of higher prices. Therefore a decrease in unemployment has led to an increase in inflation and vice versa.
  • The Curve is shown as under Phillips Curve
  • Using the data from the 1950s and 1960s when the world economy tends to be stable, the Phillips Curve relationship proved to be true for many economies such as the United States and the UK. However, during 1967-1970 most countries such as the US, Britain, and France had doubled their inflation. In 70’s the concept of a stable Phillips Curve shows a breakdown as the economy suffered from both high inflation and high unemployment simultaneously. Economists refer to this kind of situation as stagflation where stagnant economies and rising inflation occur together.

How to Prepare Phillips Curve for RBI Grade B?

  • First, you need to understand the core concept of inflation and unemployment as the Phillips Curve concept is based on these 2 terms.
  • Then go through the Phillips Curve via any standard book specified in the official syllabus.
  • Try to instill the core concept and graphical interpretation and practice the MCQs.
  • You can practice questions related to this topic in any book, through our quizzes and mock tests.

You can go through the following links for RBI Grade B 2022 preparation:

S. No Important Articles for RBI Grade B 2022
1Prepare for RBI Grade B officer 2022 with Complete Study Material
2How should Beginners prepare for RBI Grade B Exam 2022?
3How Working Professionals Should Prepare for RBI Grade B 2022?
4How to Crack RBI Grade B Phase I Exam?
5Prepare for RBI Grade B officer 2022 with Complete Study Material

 

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FAQs

  • First, you need to go through the core concepts from any standard Economics book available in the market. Then you should practice questions from the quiz and mock test.

  • Our experts have provided the Phillips Curve study notes here to help your prepare the Economics section for the upcoming RBI Grade B exam. You need to go through the whole concept to solve the related questions.

  • After going through the concepts of the Phillips curve from any stand resource, you can practice questions from that book itself, or else you can practice questions online through our website.

  • It is an economic concept that establishes the relationship between inflation and unemployment. According to the Phillips Curve theory, there is an inverse relationship between inflation and unemployment.

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