Phillips curve pt 2

Question 1

Non-Accelerating Inflation Rate of Unemployment (NAIRU)

Answer 1

The level of unemployment which the rate of inflation is expected to accelerate significantly.

Question 2

Factors affecting NAIRU

Answer 2

-Impact of globalisation on pricing power of businesses-mainly decreased
-Impact of flows of migrant workers into the UK-easing skilled labour shortages
-Factors influencing structural unemployment

Question 3

Stagflation

Answer 3

Slow economic growth, rising unemployment and high, rising inflation

Question 4

Stagflation graph

Answer 4

-The left shift of the AS curve due to factors like rising production costs leads to inflation and lower output
-The left shift of the AD curve due to decreased consumer and business spending leads to lower output and higher unemployment

Question 5

Wage price spiral

Answer 5

Where workers bid for higher wages as their real income has eroded by fast rising prices. This can lead to further cost push inflation.