The trade off between unemployment and inflation is on the short run.
SHORT RUN PHILLIPS CURVE:
•It has relevance to Okun's law. For every 1% percent of unemployment, there is a 2%
•There is an inverse relationship between unemployment rates and inflation rates.
• Since wages are sticky, inflation changes. Move the points on the SRPC.
•If inflation persists and the expected rate of inflation rises, then the entire SRPC moves upward. Which creates a situation called "stagflation".
•STAGFLATION: You have high unemployment plus high inflation simultaneously.
•If inflation expectations stop due to new technology, then the SRPC will move downward.
LONG RUN PHILLIPS CURVE:
•It occurs at the natural rate of unemployment.
• It is represented by a vertical line.
•There is no trade off between unemployment and inflation in the long run. •It only shifts if the LRAS curve shifts.
• The major LRPC assumption is that more worker benefits create higher natural rates and fewer worker benefit create lower natural rates.
•If LRAS is stable, so is LRPC.
Natural Rate of Unemployment: Seasonal, structural, and Frictional. Cyclical does not count because
•Aggregate supply shocks can cause the rate of inflation and the rate of unemployment to increase.
-What are Supply Shocks?
•They are rapid and significant increases in resource cost which will cause the SRAS curve to shift.
-The Misery Index:
•A combination of inflation and unemployment in a given year.
• Single digit misery is good.
I really like how well organized the notes are and how they differentiate between the short run Phillips curve and the long run Phillips curve. This helps me to make my own notes better for studying.
ReplyDeleteThe information is very well organized and clear. This definitely helped me understand the phillips curve a lot more.
ReplyDelete