answersLogoWhite

0

The Phillips Curve is the negative relationship between unemployment and inflation. If you want to have less unemployment the cost is inflation.

In this sense, you can also say that there is a positive relationship between output and inflation, because output is negatively correlated with unemployment (firms need workers to produce more).

The first thing you have to kept in mind is that the Phillips relation is only true for shocks in Aggregate Demand. For instances, when the U.S. suffered from stagflation on the 70s (inflation and low output - or inflation and higher unemployment) the evidence showed that not always the Phillips curve are right. In this case, the oil shocks affected suppliers costs and thus the Aggregate Supply.

Given this, the Phillips Curve holds in the short-run for any shock on AD.

In the long-run the production (unemployment) of an economy depends on its inputs abundance and their efficiency, independently of the nominal variables (like prices, inflation, etc.). So the Phillips curve is an horizontal line, the natural unemployment is independent of the inflation!

Gustavo Almeida, Portugal, gdireitinho@gmail.com

User Avatar

Wiki User

14y ago

What else can I help you with?

Related Questions

Explain what happens when the demand curve intersects with the supply curve?

explain what happens inside curve sample


Explain the consumer equilibrium with the help of indifference curve?

Explain the consumer equilibrium with the help of indifference curve?


What is diagram and explain The classical curve of economics?

How do you draw the total product Curve:


What is the nature of the J-curve?

example of a J-curve population in nature? Explain.


Movement along a demand curve?

explain graphically the movement along the demand curve


Explain the link between income consumption curve and Engel curve?

Its the same I think :)


Can inflation and employment happen at the same time?

A rise in unemployment will lead to a fall in inflation...this is best explained by the philips curve


For a given increase in supply the slope of both demand curve and supply curve affect the change in equilibrium quantity Is this statement true or false Explain with diagrams?

For a given increase in supply the slope of both demand curve and supply curve affect the change in equilibrium quantity Is this statement true or false Explain with diagrams?


Explain long run L - shaped cost curve?

L shapes cost curvr is a long run cost curve


Draw a production possibility curve and use it to explain scarcity choice and opportunity cost?

Production Possibility Curve this is an image of a ppf/ ppc


Explain why the term bell curve is appropriate for a graph of a normal distribution of traits?

No


Explain why in tensile test the level of the true stress-strain curve is higher than that of engineering stress - stain curve?

see the following questionWhat_the_difference_between_true_strain_and_engineering_strain