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In: Economics

please answer the following questions about the Philips Curve: a) How has economic opinion changed about...

please answer the following questions about the Philips Curve:

a) How has economic opinion changed about the Phillips curve since the

1960’s?

b) Draw a standard Philips Curve.

c) Draw a Philips Curve for the 1970

Expert Solution

a)

Phillips curve shows tradeoff between inflation and unemployment. Both objectives of full employments and lower inflation can not be achieved simultaneously.

Although it holds true in short run, there is no tradeoff over the long run. Economy operates the natural rate of unemployment. Adaptive expectations rules out any tradeoff between inflation and unemployment.

Further, stagflation has rendered phillips curve inapplicable. Inflation and unemployment can exist side by side.

b)

Standards Phillips Curve:

In above diagram, there is tradeoff between inflation and unemployment.

c)

1970s oil crisis proved otherwise and Phillips curve shifted to right:

In above diagram. Phillips curve shifts to right due to phenomena of stagflation. inflation and unemployment rise side by side.

Rahul Sunny answered 1 year ago

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