Phillips curve

Phillips curve- deals with inflation and unemployment


3 generalizations 

• inverse relationship between inflation and unemployment
• AS shock can cause both higher rates of inflation and unemployment
• there is no trade of between the two in the long run

Movement of short run Philips curve

• Increase in AD (Ig,C,G,Xn)-up and left along srpc
• Decrease in AD-down and right along SRPC
• Increase in AS- SRPC moves <--
• decrease in AS-SRPC moves -->

Long Run Phillips Curve

• vertical at full employment
• Major Assumptions:

            -More worker benefits create higher natural rate of unemployment and fewer worker benefits create lower natural rates of unemployment

            -LRPC shifts due to advances in technology (same as LRAS)

Misery Index

• Combination of Inflation and unemployment in a given year; single digit misery is good