Chap033 - Chapter 33 Inflation and the Phillips Curve Chapter Thirty Three Inflation and the Phillips Curve Learning Objectives After you teach the

# Chap033 - Chapter 33 Inflation and the Phillips Curve...

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Chapter 33 - Inflation and the Phillips CurveChapter Thirty ThreeInflation and the Phillips CurveLearning ObjectivesAfter you teach the material in this chapter, your students should be able to do thefollowing:1.State some of the distributional effects of inflation.2.Explain how inflation expectations are formed.3.Outline the quantity theory of money and its theory of inflation.4.Outline the institutionalist theory of inflation. 5.Differentiate between long-run and short-run Phillips curves.6.Explain the different views on the relationship between inflation and growth. Teaching Objectives To help your students achieve the Learning Objectives above, you should anticipate common student difficulties with the material and be prepared to do the following: Stress a proper understanding of the role of inflation in the economy. Your students may remember seeing countless media reports during the first half of 2008 about rising prices and may assume that, since they never saw media reports to the contrary, prices are still rising quickly. Students also often believe that rising prices always hurt consumers—that suppliers raise prices and keep price increases as profits. Half of the battle of teaching inflation is disavowing students of these false impressions. (LO1, LO6) Take your time with the equation of exchange and the quantity theory. Though this material is not terribly difficult, it is the first time your students will have done this kind of analysis in this course, analyzing the components of an equation and how they relate. The “bar” over V and Q might also be new to them. Be sure to point out that if Q is going up at a particular rate, then a same-sized increase in M is necessary to prevent price-level changes. If Q goes up, but M does not, prices will have to fall. (LO3) 33-1
Chapter 33 - Inflation and the Phillips Curve Connect the short-run Phillips curve to the SAS curve. Not only is this sound, but it’s also quite helpful. First of all, the text does this well, especially in Figure 16- 5. Secondly, students have been working with the AS / AD model for several chapters now and ought to be pretty comfortable with it. If you’d like, you can point out how the short-run Phillips curve appears to be almost a mirror image of the SAS curve. Both models, when graphed, have information relating to the price level on the vertical axis. The AS / AD model has output on the horizontal axis, while the Phillips curve diagram has unemployment. Remind your students about the negative relationship between output and unemployment: when output is high, unemployment is low, and vice versa. (LO5) Changes to the 8 th Edition The following summarizes the ways in which this chapter has been updated since the 7 th edition. Professors used to teaching from the previous edition will want to review this section to be sure they are up-to-date.