文档介绍:Intermediate Macroeconomics
Lecture 10
Inflation, Unemployment, and the Phillips Curve
Phillips Curve: relationship between inflation
and unemployment
(1958) “The relationship between unemployment and the rate of change of money wages in the united kingdom, 1861-1957,” Economica 25
Inflation, Unemployment, and the Phillips Curve
1861-1913 Original Phillips Curve
u
Inflation, Unemployment, and the Phillips Curve
Inflation rate and unemployment rate in the . after 1961
61
69
71
72
73
74
75
76
79
80,81
82,83
84
86
89
92
97
u
Phillips Curve
Inflation rate depends on
Expected inflation
The deviation of unemployment from the natural rate (cyclical unemployment)
Supply shocks
From AS to the Phillips Curve
AS:
Phillips Curve:
Expectations and Inflation Inertia
“Why is our money ever less valuable? Perhaps it is simply that we have inflation because we expect inflation, and we expect inflation because we had it.”
Robert Solow
The Two Causes of Rising and Falling Inflation
Cyclical unemployment
--- “demand-pull inflation”
High AD high employment
Supply shock
---”cost-push inflation”
Adverse supply shocks
SR Tradeoff Between Inflation and Unemployment
Expected inflation and supply shock cannot be controlled by the government. Therefore, the only channel is to use ary and fiscal policy to change AD to affect the unemployment rate
M ↓ or G ↓ AD ↓ u ↑ inflation ↓
SR Tradeoff Between Inflation and Unemployment
Higher expected inflation