[管理学]ch22-short run tradeoff between inflation and unemployment.pptVIP

In this chapter, look for the answers to these questions: How are inflation and unemployment related in the short run? In the long run? What factors alter this relationship? What is the short-run cost of reducing inflation? Why were U.S. inflation and unemployment both so low in the 1990s? Introduction In the long run, inflation unemployment are unrelated: The inflation rate depends mainly on growth in the money supply. Unemployment (the “natural rate”) depends on the minimum wage, the market power of unions, efficiency wages, and the process of job search. In the short run, society faces a trade-off between inflation and unemployment. The Phillips Curve Phillips curve: shows the short-run trade-off between inflation and unemployment 1958: A.W. Phillips showed that nominal wage growth was negatively correlated with unemployment in the U.K. 1960: Paul Samuelson Robert Solow found a negative correlation between U.S. inflation  unemployment, named it “the Phillips Curve.” Deriving the Phillips Curve Suppose P = 100 this year. The following graphs show two possible outcomes for next year: A. Agg demand low, small increase in P (i.e., low inflation), low output, high unemployment. B. Agg demand high, big increase in P (i.e., high inflation), high output, low unemployment. Deriving the Phillips Curve The Phillips Curve: A Policy Menu? Since fiscal and mon policy affect agg demand, the PC appeared to offer policymakers a menu of choices: low unemployment with high inflation low inflation with high unemployment anything in between 1960s: U.S. data supported the Phillips curve. Many believed the PC was stable and reliable. Evidence for the Phillips Curve? The Vertical Long-Run Phillips Curve 1968: Milton Friedman and Edmund Phelps argued that the tradeoff was temporary. Natural-rate hypothesis: the claim that unemployment eventually returns to its normal or “natural” rate, regardless of the inflation rate Based on the classical dichotomy