Module Inflation and Unemployment: The Phillips Curve

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ModuleInflation andUnemploymentThe Phillips
Curve
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• KRUGMAN'S
• MACROECONOMICS for AP

Margaret Ray and David Anderson
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What you will learnin this Module

• What the Phillips curve is and the nature of the
  short-run trade-off between inflation and
  unemployment
• Why there is no long-run trade-off between
  inflation and unemployment
• Why expansionary policies are limited due to the
  effects of expected inflation
• Why even moderate levels of inflation can be hard
  to end
• Why deflation is a problem for economic policy
  and leads policy makers to prefer a low but
  positive inflation rate

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The Short-Run Phillips Curve

• Phillips Curve
• Short-Run Phillips Curve
• The role of supply shocks
• Friedman and Phelps

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Inflation Expectations and the Short-Run
Phillips Curve

• Expected Inflation
• Relationship between actual and expected
  inflation
• What determines expected inflation?
• Why was expected inflation not included
  initially?

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Inflation and Unemployment in the Long Run

• The SRPC of the 1960s
• The experience of the 1970s
• The trade-off between inflation and unemployment

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The Long-Run Phillips Curve

• The short run and long run effects of
  expansionary policies

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The Long-Run Phillips Curve

• NAIRU
• LRPC
• Natural Rate Hypothesis
• Natural Rate NAIRU

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The Costs of Disinflation
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Deflation

• Deflation
• Debt Deflation
• Effects of Expected Deflation
• Zero Bound
• Liquidity Trap