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Week 7 Discussion Forecasting 2 - If the economy is weak...

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The Phillips curve illustrates the relationship between unemployment and inflation. When unemployment is high, inflation is low and vice versa. This poses a problem when the goal is to regulate both. There is also a strong correlation between unemployment rates and short-term interest rates. Increasing unemployment rates seem to go together with lower interest rates.
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Unformatted text preview: If the economy is weak, interest rates will not rise and vice versa. Therefore inflation would be low during times with high unemployment and low interest rates. Sources: http://library.thinkquest.org/C004323/low/macro4.html http://peterdag.blogspot.com/2008/08/unemployment-rate-and-interest-rates.html...
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