The Phillips curve can be represented mathematically

The Phillips curve can be represented mathematically - The...

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Unformatted text preview: The Phillips curve can be represented mathematically, as well. The equation for the Phillips curve states inflation = [(expected inflation) B] x [(cyclical unemployment rate) + (error)] where B represents a number greater than zero that represents the sensitivity of inflation to unemployment. While the Phillips curve is theoretically useful, however, it less practically helpful. The equation only holds in the short term. In the long run, unemployment always returns to the natural rate of unemployment, making cyclical unemployment zero and inflation equal to expected inflation. Problems with the Phillips Curve and Stagflation In fact, the Phillips curve is not even theoretically perfect. In fact, there are many problems with it if it is taken as denoting anything more than a general relationship between unemployment and inflation. In particular, the Phillips curve does a terrible job between unemployment and inflation....
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