Summary the phillips curve shows a negative relation

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Macroeconomics for Today
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Chapter 11 / Exercise 13
Macroeconomics for Today
Tucker
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Summary-The Phillips curve shows a negative relation between unemployment rate and inflation. -Modified Phillips curve showed relation between changein inflation rate and unemployment rate. -The aggregate supply relation between the price level, the expected price level and the unemployment rate can be shown as: P = (1+μ) F(μ, z)-For a given expected inflation, inflation decreases with an increase in unemployment rate. -For a given expected inflation, an increase in the markup (μ) or factors that affect wage determination (z) results in an increase in the actual inflation. -An increase in the expected inflation results in an increase in actual inflation. -Phillips curve failed because: The expected inflation rate varied considerably more in the 1970s than it did in the 1960s. Monetary policy was also highly expansionary in the 1970s, leading to high and volatile actual and expected inflation. The natural rate of unemployment varied considerably more in the 1970s than it did in the 1960s. -Modified Phillips curve is the relationship between the unemployment rate and the change in the inflation rate.
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Macroeconomics for Today
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Chapter 11 / Exercise 13
Macroeconomics for Today
Tucker
Expert Verified
Lesson: Inflation, Unemployment and the Phillips CurveInstitute of Lifelong Learning, University of Delhi -A relationship between growth in output and change in unemployment rate is called the Okun’s law-A relationship between inflation, money growth and output growth is called the aggregate demand relation.-Credibility of monetary policy could be defined as the belief by wage setters that central bank was truly committed to reduce inflation. Exercise 1. Define Phillips curve. 2.Give the reasons for failure of Phillips curve after 1970s. 3.Derive the Phillips curve relation mathematically. 4.Suppose Phillips curve equation is given by: = + 0.1 - 2. Assume = θ . Find NRU. 5.Taking equation in 4thquestion, suppose θ is zero and unemployment rate is equal to NRU. In year ‘t’ unemployment rate is brought down to 3%, what will be inflation rate in years t, t+1, t+2 and t+5? 6. Define Okun’s Law.7.Derive the aggregate demand relation. 8. Define nominal money growth in the medium and short-run. 9. What is Lucas critique? 10.Give some views on credibility and nominal rigidities. References1.Olivier Blanchard, Macroeconomics, Worth publishers, 4thedition 2.CLF Attfield, D. Denery & N.W. Duck (1991. 2ndedition)

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