Mod 34_ Inflation and Unemployment Through The Phillips Curve.docx - Justin Sousa 1 December 5 2016 Mod 34 Inflation and Unemployment Through The

Mod 34_ Inflation and Unemployment Through The Phillips Curve.docx

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Justin Sousa 1 December 5, 2016 Mod 34: Inflation and Unemployment Through The Phillips Curve The Short-Run Phillips Curve - There is a short-run trade-off between unemployment and inflation –lower unemployment tends to lead to higher inflation, and vice versa - This is caused by wages increasing during low unemployment and decreasing during high unemployment - The short-run Phillips Curve (SRPC) illustrates the negative relationship between the unemployment rate and the inflation rate - A negative supply shock causes the SRPC to rise because the inflation rate increases for every level of unemployment rate - Economists also began accepting the expected inflation rate, the rate of inflation that employers and workers expect in the near future

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