Beruflich Dokumente
Kultur Dokumente
In the short run, the unemployment rate (U) and aggregate output (income) (Y) are
negatively related.
As depicted by this short run AS curve, the relationship between Y and the price level (P)
is positive.
PHILIPS CURVE
Named after British economist WILLIAM PHILLIPS (1914-1975), Phillips curve charts
the significant relationship between the percentage change inflation rate and rate of
unemployment.
Its main implication is that low inflation and low unemployment are incompatible, and so
governments have to choose the best combination of both.
The Phillips Curve shows the relationship between the inflation rate and the
unemployment rate.
There is a trade-off between inflation and unemployment. To lower the inflation rate,
we must accept a higher unemployment rate.
But in the 1970s and 1980s, the Phillips Curve broke down.
The points on this figure show no particular relationship between inflation and
unemployment.
Inflationary expectations shift the Phillips curve to the right. This means that high
inflation rate and high unemployment will exist together.
This happens because as workers expect price rise they put pressure on employers to
increase wages this decreases the demand for workers and unemployment rises.
Inflationary expectations were stable in the 1950s and 1960s, but increased in the 1970s.