Lecture Notes for Chapter 12 - Lecture Notes Ch 12...

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Lecture Notes: Ch 12 Macroeconomics Fall 2014
Unemployment and Inflation: Is There a Trade-off?
Figure 12.1 The Phillips curve and the U.S. economy during the 1960s Source:Federal Reserve Bank of St. Louis FRED database at research.stlouisfed.org/fred2, series CPIAUCSL and UNRATE.
Unemployment and Inflation: Is There a Trade-off? “Keynesian” interpretation:Inflation arises from rapid growth in aggregate demand, and unemployment reflects sluggish growth (or declines) in aggregate demand Policy implications? Can policymakers pick a point on the Phillips Curve? Do they face a trade-off between inflation and unemployment? “Stagflation” in early 1970s contradicted the standard “Keynesian” viewThis drew attention to earlier work questioning the “Keynesian” interpretation
Unemployment and Inflation: Is There a Trade-off?
Unemployment and Inflation: Is There a Trade-off? The expectations-augmented Phillips curve How does this work in the extended classical model?
Figure 12.3 Ongoing inflation in the extended classical model
Unemployment and Inflation: Is There a Trade-off? The expectations-augmented Phillips curve How does this work in the extended classical model?
Figure 12.4 Unanticipated inflation in the extended classical model
Unemployment and Inflation: Is There a Trade-off?

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