Unit 5: Phillips Curve

Original SR Phillips Curve

• Inflation and unemployment are inverse of each other
• Inflation increases as the economy expands
• Recession- unemployment increases as the economy slows down 

Stagflation

• Is an increase in inflation and unemployment at the same time.

A New Phillips Approach 

• New Range - The SRPC can move outward and inward
• Cost Push Inflation is when there is more stress on resources, wages and input cost.
• Supply Shocks -  A rapid loss of resources or rapid increase in resource cost.
• The SRPC Curve moves outward during these shocks
• The SRPC moves back inward as the society increases productivity and/or regains resources.

Long Run Phillips Curve

• Inflation- Society will adjust for a cost/wage increases with new prices.
• LRPC is the efficient PPF
• Natural Rate of Unemployment becomes the equivalent of the full employment rate

Phillips and AD/AS Curves

• Change points on SRPC - Along the curve
• Move the SRPC - Shift the curve on the SRPC