Answered: How does Philip's curve describe the…

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Six Debates Over Macroeconomic Policy

Section18.4: Should The Central Bank Aim For Zero Inflation?

Problem 4QQ

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How does Philip's curve describe the relationship of inflation and unemployment? What are the criticisms on the Phillip's curve?

Definition Definition Relationship between the rate of unemployment and the rate of inflation that shows that the lower the initial rate of unemployment, the greater the rise in wage rate corresponding to a given rise in the rate of unemployment. The Phillips curve assumes that the ratio between prices and nominal wage rates is constant in the short run. Presented graphically, the Phillips curve shows an inverse relationship between the rate of unemployment and the rate of inflation.

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Philip's Short Curve: -

The reality between growth rates and unemployment rates is relàted to relationships. this means that the Phillips short-term curve. has an L-shape. The Phillips bend correlàtes with growth rate and unemployment rates. The Phillips bend asserts that unemployment and inflammation are the opposite: as unemployment ràtes decline, they increase. Relationships, however, are not straightforward. The Phillips short-term curve follows the L-shape when the inàctivity level is x-axis and the expansion rate is y-axis.

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