- Long-Run Phillips curve exists off the natural rate of Unemployment (Un)
- Structural changes in the economy that affect Un will also cause the LRPC to shift.
- Increase in Un will shift LRPC to the right.
- Decrease in Un will shift LRPC to the left.
The Short-Run Philips Curve (SRPC)
- There is a trade off between inflation and unemployment.
- As one increases, the other decreases and vice versa.
LRPC
- There is no trade off between inflation and unemployment.
- LRPC is represented by a vertical line.
- The LRPC occurs at the natural rate of unemployment.
- The LRPC only shifts if the LRAS shifts
NRU= Frictional + Structural + Seasonal Unemployment
What changes LRPC?
The major LRPC assumption is that more worker benefits create a higher natural rate of unemployment and fewer worker benefit creates a lower natural rate
The Misery Index-
- It's a combination of inflation and unemployment in a given year.
- Single digit misery is good
- Inflation: It is the general rise in the price level
- Deflation: A general decline in the price level
- Disinflation: Decrease in the rate of inflation over time
- Stagflation: Unemployment and inflation increasing at the same time
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