Philips Curve Flashcards
1
Q
How expected inflation shifts SRPC
A
Expansionary policy moves economy up SRPC
In LR, expected inflation increases and SRPC shifts right
2
Q
Natural rate hypothesis
A
Claim that unemployment eventually returns to normal/natural rate regardless of rate of inflation.
3
Q
Adverse shock to AS
A
Lowers output - AS shift left
Increases PL
Policy makers = less favourable trade off between unemployment and inflation as PC shift right
4
Q
Adaptive expectations
A
Model which states that individuals and organisations base their expectations of inflation in future on past actual inflation rates
5
Q
Thatcher disinflation
A
20%-5% 1980-1983/4
High unemployment 11%- around 2x to start
6
Q
Demand shocks
A
=movement along Philips curve
7
Q
Unemployment rate
A
NRU - a(Actual inflation - expected inflation)
