Demand policies targeted to reduce the unemployment become ineffective in presence of the following :
Vertical phillips curve
Option 1 — Vertical Phillips curve is correct.
The Phillips curve depicts the relationship between unemployment and inflation. A downward-sloping (short-run) curve implies a trade-off: expansionary demand policy can lower unemployment at the cost of higher inflation. A vertical Phillips curve is the long-run curve at the natural rate of unemployment.
When the curve is vertical, there is no trade-off — unemployment stays at its natural rate regardless of aggregate demand. Any demand-side stimulus then raises only prices (inflation), leaving unemployment unchanged. Hence demand-management policies aimed at reducing unemployment become ineffective.
Why the other options are wrong: Money illusion actually makes demand policy temporarily effective, because workers misread nominal wage rises as real gains and supply more labour. A horizontal Phillips curve would imply the economy can expand output with no inflation cost, so demand policy would be highly effective. Since option 1 correctly identifies the condition, "none of the above" is ruled out.
Takeaway: A vertical long-run Phillips curve at the natural rate leaves demand policy powerless over real unemployment.
Similar Questions
In case of cost-push inflation :
If two goods are perfect substitutes for each other, Cross elasticity of demand between them will be :
Which of the following statements are correct ?
A. Gross Domestic Product at Market Price = Gross National Product at Market Price + Net Factor Income From Abroad
B. Gross Domestic Product at factor Cost = Gross Domestic Product at Market Price – Indirect Taxes + Subsidies
C. Net Domestic Product at Market Price = Net National Product at Market Price – Net Factor Income From Abroad
D. Gross Domestic Product at Market Price = Net Domestic Product at Market Price + Depreciation
E. Net National Product at Market Price = Gross Domestic Product at Market Price + Net Factor Income From Abroad + Depreciation
Choose the correct answer from the options given below :
Match List - I with List - II.
List - I
(Term)List - II
(Description)A. Law of Diminishing Marginal Utility I. On each successive unit consumed, the utility derived goes on falling B. Consumer Surplus II. The rate at which consumer is ready to compromise goods X for another goods Y, holding the level of satisfaction constant C. Marginal Rate of Substitution III. Difference between what a consumer is ready to pay for a commodity and what he actually pays for it D. Budget Line IV. All those combinations of two goods which consumer can buy spending his given money income and their given prices. Choose the correct answer from the options given below :
Match the items of the List - I with those of the List - II and indicate the correct code :
List - I List - II (a) Positive income elasticity (i) Substitute goods (b) Negative income elasticity (ii) Complementary goods (c) Positive cross elasticity (iii) Inferior goods (d) Negative cross elasticity (iv) Superior goods Code :
Match the items of the List - I with those of List - II and suggest the correct code from the following :
List - I List - II (a) GDP (i) National income (b) GDP at factor cost (ii) NDP plus Net flow of income from abroad (c) NNP at factor cost (iii) Money value of final goods and services produced (d) NNP (iv) Total gross value added by all enterprises in the economy Code :
Who among the following is known for application of Psychology to industry and management ?
If the demand for using the Noida express way is given by :
Q = 40,000 – 2500P
Where Q is the number of users (vehicles) and P is the amount of toll collected per unit who uses the express way. In light of this information which of the following is true :
The demand function for commodity X, is \( Q_D = 300 - 20P \); where P is the price in rupees per unit and \( Q_D \) is the quantity demanded in units per period. Which of the following is the price level at which total revenue of a firm facing this demand function is maximised?
For an economy which consist of single automobile maker and that in year 2014, 30,000 vehicles are produced with an average price of ₹ 5 lakh. For this economy what would be the increase in the nominal GDP for 2015 compared with 2014 with the 4% greater automobile production and 8% inflation.
Important Questions from Miscellaneous
The ration of the number of girls and boys in a school is 8 : 7. If the percentage increase in the number of girls and boys is 10% and 20% respectively, what will be the new ratio?
The cheapest means of transport is:
The property of Catenation is most readily predominant in:
Which newspaper edited by Bal Gangadhar Tilak, was one of the strongest critics of the British rule?
Which of the following is NOT a cause of food and water contamination?
