Unit Five: Phillips Curve

Phillips Curve

Notes from 4/8/16

Long Run Phillips Curve

LRPC

-Because the LRPC exists at the NRU, structural changes in the economy that effect NRU will also cause the LRPC to shift

     -Increases in the NRU wil shift LRPC --->

     -Decreases in the NRU will shift the LRPC <---

SRPC

-There is a tradeoff between inflation and unemployment

-One increases, then the other decreases and vice versa

-Determinants are same as AS: Productivity, Input Costs, Legal Institutions

LRPC

-There is NO tradeoff between inflation and unemployment

-Always vertical at the natural rate of unemployment (NRU)

-Will only shift if LRAS shifts

*NRU= Frictional + Structural + Seasonal Unemployment

MAJOR LRPC ASSUMPTION

That more worker benefits create higher NR's and fewer worker benefits create lower NR's 

Supply Shocks

-Rapid and significant increases in resource costs which cause the SRAS curve to shift

-Outcome: SRAS will shift downward, SRPC will shift outward

Misery Index

-The combination of inflation and unemployment in any given year

-Single digit misery is GOOD

-Used to determine what is up with the economy

-JaelyNoTainted

Like Jaelyn (SPACE) Not (SPACE) Tainted

Get it?