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17+Aggregate+Supply+and+the+Phillips+Curve

17+Aggregate+Supply+and+the+Phillips+Curve - Agenda 1 The...

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1 17-1 The Phillips Curve and Aggregate Supply 17-2 Agenda 1. The Phillips Curve 2. The Aggregate Supply Curve 17-3 The Phillips Curve The Phillips curve is the inverse relationship between inflation and unemployment . 1. When unemployment is unusually low, the demand for labor will exceed the supply of labor and wages will rise more quickly. 2. Because wages are a major input into total costs, more rapidly rising wages leads to higher inflation. 17-4 The Phillips Curve The Phillips curve is given by: where: 1. = inflation, 2. U = the unemployment rate, and 3. = the sensitivity of to changes in U. π = - ω U π ω π
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