The Phillips Curve
AP Macroeconomics · Flashcards · Application
AP MACROECONOMICS · FLASHCARDS
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QUESTION
If
u
<
u
n
u<u_n
u
<
u
n
and
v
=
0
v=0
v
=
0
, what does
π
=
π
e
−
β
(
u
−
u
n
)
+
v
\pi=\pi^e-\beta(u-u_n)+v
π
=
π
e
−
β
(
u
−
u
n
)
+
v
imply about
π
\pi
π
relative to
π
e
\pi^e
π
e
?
QUESTION
If expansionary policy lowers unemployment in the short run, what happens to inflation in the short run?
QUESTION
If unemployment is below
u
n
u_n
u
n
, what happens to inflation over time as expectations adjust?
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ANSWER
Inflation tends to rise; SRPC shifts up until unemployment returns to
u
n
u_n
u
n
. Tight labor markets drive wages and prices up, shifting SRPC upward.
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