Sunday, May 15, 2016

Unit 5: More of the long run phillips curve

April 8, 2016


Natural rate of unemployment is held constant

  • Because the long run phillips curve exists at the natural rate of unemployment, structural changes int he economy that affect Un will also cause the LRPC to shift.
  • increase in Un will shift LRPC right
  • Decrease in Un will shift LRPC left
relating phillips curve to AS/AD

  • changes in the AS/AD model can also be seen in the phillips curve
Phillips curve
  • The economy produces at the full employment output level
  • represented by a vertical line
  • it occurs at the natural rate of unemployment
NRU= frictional + structural + seasonal
FE= 4-5%
Major LRPC assumption is:

  • more work. benefits create higher natural rates and fewer benefits create more natural rates.
Posted by at

1 comment:

  1. Samantha C.May 16, 2016 at 9:41 AM

    In the long run, there is no trade off between the inflation rate and the unemployment rate, which is why it is represented by a vertical line.

    ReplyDelete

Subscribe to: Post Comments (Atom)