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12190_mert_gokcu_philips_curve_mertgokcu_42168_71411465.docx

12190_mert_gokcu_philips_curve_mertgokcu_42168_71411465.docx...

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SECOND ASSIGNMENT Firstly, I would like to mention developing of the Philips curve. A. W. Philips analyzed rate of inflation against rate of unemployment in the United Kingdom from 1861 to 1957 in 1958. He investigated that there is negative relationship between inflation and unemployment. When unemployment was high, inflation was low vice versa. After two years, Paul Samuelson and Robert Solow found same relationship for United States’ data. This policy became popular in countries. If one country wants to achieve low unemployment, it must accept higher inflation. However, in the 1970s, unemployment rate and change in inflation rate was analyzed. This means that, low unemployment causes to increase in inflation over time rather than leading to high inflation. Secondly, I would like to talk about equation of the Philips curve. We know that if expectation of the inflation rate is high, then actual inflation is high. On the other hand, increasing in u causes to decrease in actual inflation. Old Philips curve explains that as long as
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