Ch 36 unemployment and inflation
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This document discusses the relationship between inflation and unemployment. It explains that the Phillips Curve shows a short-term tradeoff between inflation and unemployment, but that Milton Friedman argued there is no long-term relationship. Friedman proposed that inflation cannot permanently reduce unemployment below its "natural rate". The document also defines key terms like disinflation, deflation, and the natural rate hypothesis.
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Ch 36 unemployment and inflation
- 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."
- 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
- 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
- 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?