Thursday, April 28, 2016

UNIT 5: Philips Curve

                                          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.










3 comments:

  1. it would have been helpful to have visuals. by the notes are very clear. I was always confused on misery index.

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  2. WOW 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.

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  3. These notes are very useful. hey did you know, Irving Fisher noticed the correlation between inflation and unemployment a couple decades before William Phillips did?

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