The Phillips Curve

Question 1

what is the phillips curve?

Answer 1

suggests we can see a trade off between unemployment and inflation

Question 2

Short run phillips curve

Answer 2

lower employment and low inflation to higher employment and higher inflation

Question 3

monetarists view of the long run curve

Answer 3

only a temporary trade off

Question 4

importance of the phillips curve?

Answer 4

If the Monetarist view is correct, it would suggest that demand side policies to reduce unemployment will be ineffective in the long run. Therefore, Monetarists place greater stress on supply side policie.

If the Keynesian view of the Phillips Curve is correct, then demand side policies could play a role in reducing cyclical unemployment. However, they would still have to be careful not to cause inflation.

L shaped curve. In some situations, e.g. deep recession, it is possible to reduce unemployment without inflation. However, when the economy gets close to full capacity, reducing unemployment has a much bigger impact on inflation