What is the Phillips curve? Discuss both the short-run and long-run Phillips curve. Explain how the...

What is the Phillips curve? Discuss both the short-run and long-run Phillips curve.

Explain how the expected inflation rate affects the short-run Phillips curve. Be sure to mention the role played by the money wage rate.

When the natural unemployment rate changes, what happens to the short-run Phillips curve? To the long-run Phillips curve?

Solutions

Expert Solution

Phillips curve is an economics concept developed by A W phillips in which he states that there is a stable and inverse relationship between inflation and unemployment.

The short-run Phillips curve is an L-shape when the unemployment rate is on the x-axis and the inflation rate is on the y-axis and depics negative relationship between the inflation rate and the unemployment rate.

The long-run Phillips curve is a vertical line at the natural rate of unemployment, so inflation and unemployment are unrelated in the long run. Decreases in unemployment can lead to increases in inflation, but only in the short run. In the long run, inflation and unemployment are unrelated.

Rahul Sunny answered 1 year ago

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