Eco 202 ch 36 unemployment and inflation
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Eco 202 ch 36 unemployment and inflation Presentation Transcript

  • 1. Chapter 36 ! Unemployment and Inflation
  • 2. Economic Cycle
  • 3. Saudi Inflation Rate
  • 4. A.W. Phillips (1914 - 1975) Phillips Curve Relationship between Inflation and Unemployment
  • 5. Phillips Curve A curve that shows the short-run trade-off between unemployment and inflation
  • 6. George Akerlof (1940 - ) Nobel Prize 2001 "Probably the single most important macroeconomic relationship is the Phillips curve."
  • 7. Inflation Rate Unemployment Rate Phillips Curve 1961 1963 1962 1964 1965 1966 1967 1968
  • 8. Inflation Rate Unemployment Rate4% 7% 6% 2% Phillips Curve Tradeoff High Inflation and Low Unemployment Low Inflation and High Unemployment
  • 9. Milton Friedman (1912 - 2006) Is there a long term relationship between Inflation and Unemployment?
  • 10. Inflation Rate Unemployment Rate 1961 1963 1962 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973
  • 11. Inflation Rate Unemployment Rate 1968 1969 1970 1971 1972 1973 No Relationship
  • 12. Milton Friedman (1912 - 2006) No Long Run Structural Relationship between Inflation and Unemployment
  • 13. Short-Run ! ! Long-Run Inflation can reduce unemployment ! Inflation and unemployment are unrelated ! !
  • 14. Inflation Rate Unemployment Rate Phillips -Friedman Curves Short-Run Long-Run No relationship because LRAS is vertical
  • 15. Price Level Quantity of Output P1 AD- AS Model Aggregate Demand Short Run Aggregate Supply Y1 Y2 P2 Long Run Aggregate Supply P3
  • 16. Natural Rate Hypothesis The claim that unemployment returns to its normal, or natural rate regardless of the rate of inflation
  • 17. Disinflation reduction in the rate of inflation - slows down Deflation reduction in the price level go in reverse
  • 18. Saudi Inflation Rate Deflation Disinflation
  • 19. 1.What is the Phillips Curve? ! 2.What is the Friedman Curve? ! 3. Can inflation be good? ! 4.What is worse, inflation or deflation? ! 5.What is disinflation?