Fed History

Fed History - The Vertical Long-Run Phillips Curve 1968:...

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T H E S H O R T R U N T R A D E O F F 1 The Vertical Long-Run Phillips Curve 1968: Milton Friedman and Edmund Phelps argue d that the tradeoff was temporary. Natural-rate hypothesis : the claim that unemplo yment eventually returns to its normal or “natural” r ate, regardless of the inflation rate Based on the classical dichotomy and the vertical LRAS curve
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The Vertical Long-Run Phillips Curve u-rate inflation In the long run, faster money growth only causes faster inflation. Y P L R A S AD 1 AD 2 Natural rate of output Natural rate of unemployment P 1 P 2 L R P C low infla- tion high infla- tion 2
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T H E S H O R T R U N T R A D E O F F 3 Evidence for the Phillips Curve? Inflation rate (% per year) Unemployment rate (%) 0 2 4 6 8 10 0 2 4 6 8 10 During the 1960s, U.S. policymakers opted for reducing unemployment at the expense of higher inflation 1961 63 65 62 64 6 6 67 68
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T H E S H O R T R U N T R A D E O F F 4 The Phillips Curve Phillips curve : shows the short-run trad e-off between inflation and unemployment 1958:
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This note was uploaded on 03/03/2012 for the course ECON 252 taught by Professor Robertholand during the Spring '08 term at Purdue.

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Fed History - The Vertical Long-Run Phillips Curve 1968:...

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