9) the Phillips curve

Question 1

What does the Keynesian Phillips curve show??

Question 2

What does a Neo classic Phillips curve look like?

Answer 2

The long run Phillips curve is perfectly inelastic, but the short run curve is the same

Question 3

What do Neo classical economists think about the Phillips curve?

Answer 3

• policies to reduce unemployment will result in inflation in the short run, and in the long run unemployment will revert back to its natural rate but which a higher price level
• they argue unemployment is fixed in the long term at the Natural rate of unemployment

Question 4

why does the Neo classic Phillips curve look how it does?

Answer 4

• in the short term, efforts to reduce unemployment will result in inflation and unemployment will reduce from its NRU
• in the long term the short term curve shifts to the right because workers bid up their nominal wages (due to high job security), this increases inflation and real wages remain unchanged, so people are supplying less work and unemployment reverts back to its NRU

Question 5

What is adaptive economics?

Answer 5

-the process where economists base what they think will happen In the future on what has happened in the past
eg inflation

Question 6

What is the limitation of adaptive economics?

Answer 6

-very simple model, what has happened in the past is only one aspect determining what will happen in the future