April 2, 2015
Phillips Curve: Represents the ralationship between unemployment and inflation.
LRPC: Occurs at the NRU (seasonal, frictional, 4-5%) Represented by a vertical line. There is no trade of between unemployment and inflation. Economy produces at the full employment level (will only shift if the LRAS curve shift). LRpC major asumption is that more woker benefit creeate higher natural rates, and fewer worker benefit create lower natural rates.
SRPC: There is a trade off between inflation and unemployment (only occur in SR) Inverse relationship. High Inflation = Low unemployment, Lower Inflation = High Unemployment
The SRPC relevance to Oakum's law. Since Wage are sticky, inflation changes more the points in the SRPC.
SRPC: There is a trade off between inflation and unemployment (only occur in SR) Inverse relationship. High Inflation = Low unemployment, Lower Inflation = High Unemployment
The SRPC relevance to Oakum's law. Since Wage are sticky, inflation changes more the points in the SRPC.
- If inflation persist and the expected rate of inflation rises, then the entire SRPC moves upward, which causes stagflation.
- If inflation expectation drops due to new tech or economic growth, then the SRPC moves downward.
AS (shots - Rapid and significant increase in resource cost) Cause the rate of inflation and rate of unemployment to increase. The misery index is a combo of inflation and unemployment in any given year. Single digit misery is good.
thank you for these notes about the Phillip's curve! This topic is pretty tricky to me and thanks to these notes, I have a better understanding of the topic.
ReplyDeletePoint A, B and C really helped me see how the SRPC can shif due to inflation and unemployment. Just an FYI: you spelled Okun as Oakum.
ReplyDelete