Philips curve
The long-run Philips curve (LRPC)
-
Because the long-run Philips curve exists of
the natural rate of unemployment (Un), structural changes in the economy that affect Un will also cause
the LRPC to shift.
-
Increase in Un will shift LRPC o the right.
-
Decrease in Un will shift LRPC to the left.
Short run Philips curve (SRPC)
1.
There is a tradeoff between inflation and
unemployment. As one increase the other decrease and vice versa.
Long
run Philips cure (LRPC)
1.
There is no tradeoff between inflation and
unemployment.
2.
LRPC is represented by a vertical line.
3.
The LRPC occurs at the natural rate of
unemployment.
4.
The LRPC only shifts if the LRAS shifts
NRU = frictional + structural + seasonal
unemployment.
What changes LRPC
The
major LRPC assumption is that more worker benefits create higher natural rate
of unemployment and fewer worker benefit creates lower natural rate.
The misery index
It is a combination of inflation and
unemployment in a given year.
-
Single digit misery is good.
Inflation:
It is the general rise in the price level
Deflation:
A general decline in the price level
Disinflation:
Decrease in the rate of inflation over time
Stagflation:
Unemployment and inflation increasing at the same time.
it would have been helpful to have visuals. by the notes are very clear. I was always confused on misery index.
ReplyDeleteWOW thanks for the info on the phillips curve. Even more to go on that: In the long run, only a single rate of unemployment was consistent with a stable inflation rate. The long-run Phillips Curve was thus vertical, so there was no trade-off between inflation and unemployment.
ReplyDeleteThese notes are very useful. hey did you know, Irving Fisher noticed the correlation between inflation and unemployment a couple decades before William Phillips did?
ReplyDelete