Phillips Curve

 

*Note that this graph is missing the Long Run Curve which would show the natural rate of unemployment

Long Run Phillips Curve

The LRPC exists at the NRU, structural changes in the economy the effect the NRU cause the LRPC to shift as well. 

• Increases in the NRU will shift LRPC -->
• Decreases in the NRU will shift LRPC <--

Short Run Phillips Curve

There is a trade-off between inflation and unemployment

• as one increases, the other decreases and vice versa
• determinants are the same as AS: produtivity, input costs, legal institutions

Long Run Phillips Curve

There is no trade-off between inflation and unemployment as the line is always vertical at NRU.

• will only shift is LRAS shifts

Major LRPC Assumption

More worker benefits create higher NR's and fewer worker benefits create lower NR's

Supply Shocks

Rapid and significant increases in resource cost

• causes SRAS to shift
• SRAS shifts downward, SRPC shifts outward

Misery Index

The combination of inflation and unemployment in any given year

• single digit misery is good
• Used to determine what's going on in with the economy