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Class Notes - 11-19-07

Class Notes - 11-19-07 - Macroeconomics Class Notes Misery...

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Macroeconomics – Class Notes – 11/19/07 Misery Index M = Inflation rate + unemployment rate The triangle means “change in” “Change in” Suppose Government Pushes Economy Beyond Its Potential Inflation and Unemployment Macroeconomics focuses on – output, prices, and unemployment. AD shifts right: lowers unemployment rate and increases inflation AD shifts left: raises unemployment rate and lowers inflation THE PHILLIPS CURVE Illustrates shorten tradeoff between inflation rate and unemployment rate Illustrates the tradeoff between inflation and unemployment – a short-run relationship Phillips curve slopes downward o Y-Axis – ACTUAL inflation rate o X-Axis – Unemployment Rate Shifts in the Phillips Curve Stable Phillips Curve broke down in the 1970s and 1980s. Both inflation and unemployment rose Phillips Curve tradeoff short-run Long-run Phillips Curve is vertical at the natural rate The Phillips Curve A menu of Short-run choices between inflation rate and unemployment rate.
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