What is Phillips curve in short run and long run?
The Phillips curve shows the relationship between inflation and unemployment. In the short-run, inflation and unemployment are inversely related; as one quantity increases, the other decreases. In the long-run, there is no trade-off.
What does the short run Phillips curve represent?
Key terms
| Key term | Definition |
|---|---|
| short-run Phillips curve (“SPRC) | a curve illustrating the inverse short-run relationship between the unemployment rate and the inflation rate |
What relationship does the short run Phillips curve show?
inflation and unemployment
The Phillips curve shows the short-run relationship between inflation and unemployment. As price level rises, unemployment decreases (point A to point B on Phillips curve). Movement up along the supply curve is mirrored by movement up along the Phillips curve.
What is the impact of expected inflation on the short and long run Phillips curves?
The expected rate of inflation will also cause the short-run Phillips curve to shift. When workers expect inflation they bargain for higher wage rates, and employers are more willing to grant higher wage rates when they expect to sell their product for higher prices in the future.
What happens to the Phillips curve in the long run quizlet?
The long run Phillips curve is also known as the vertical long-run Phillips curve. It is at the natural rate of unemployment, and there is no trade-off between unemployment and inflation. In the long run, changes in the unemployment rate do not affect the inflation rate. Therefore, policies can be more flexible.
Why is the short run Phillips curve downward sloping but the long run Phillips curve vertical?
In the short run, the Philips curve slopes downward because it captures the impact of the unemployment rate on the inflation rate. The Philips curve is parallel to the Y-axis in the long run because it shows the fixed unemployment rate at different inflation rates; there is no trade-off between these two variables.
Why is the short run Phillips curve vertical?
This is shown by a rightward shift in the SRPC. Therefore, we can say that in the long-run, the Phillips Curve will be vertical because irrespective of the price level, unemployment will return to its natural rate (Natural Rate of Unemployment a.k.a NRU).
What is the slope of Phillips curve in long run?
A Phillips curve shows the tradeoff between unemployment and inflation in an economy. From a Keynesian viewpoint, the Phillips curve should slope down so that higher unemployment means lower inflation, and vice versa.
What is the Phillips curve equation?
The 3 equations are the IS equation y1 = A−ar0 in which real income y is a positive function of autonomous expenditure A and a negative function of the real interest rate r; the Phillips curve π1 = π0 + α(y1 − ye), where π is the rate of inflation and ye, equilibrium output; and the central bank’s Monetary Rule.
Where does the short run Phillips curve intersect the long run Phillips curve quizlet?
The downward sloping short-run phillips curve intersects the vertical long-run phillips curve at the expected rate of inflation. When expected inflation changes, the short run philips curve shifts. In the short run, expected inflation is given, so higher actual inflation is associated with lower unemployment.