Th2.6: Unemployment vs Inflation Flashcards
1
Q
Refer to PP
Look at Graph 9. What does this show?
A
the Phillips curve
2
Q
What did A.W.Phillips find the existence of?
A
an empirical regularity, which said that the rate of change in money wages increased as the rate of unemployment fell
3
Q
This was then generalised into a relationship between unemployment and inflation, arguing that…
A
firms pass on increases in wages to the customer in increased prices
4
Q
What is the reason for this connection?
A
businesses know that if there is high level unemployment, they can attract the workers they want with low wages.
5
Q
What will firms do if unemployment is low?
A
compete for the best workers and therefore offer higher wages as an incentive
6
Q
What is an exception of the Phillips curve?
A
stagflation as seen in 1970
