UB ECO 181LD - Chapter 13 phillips curve-2 (12 pages)

Previewing pages 1, 2, 3, 4 of 12 page document View the full content.
View Full Document

Chapter 13 phillips curve-2



Previewing pages 1, 2, 3, 4 of actual document.

View the full content.
View Full Document
View Full Document

Chapter 13 phillips curve-2

25 views


Pages:
12
School:
University at Buffalo-SUNY
Course:
Eco 181ld - Intro To Macroeconomics

Unformatted text preview:

Chapter 17 Stabilization in an integrated world economy What type of policy should be followed Active discretionary All actions on the part of monetary and fiscal policymakers that are undertaken in to or in anticipation of some in the overall economy People in favor of active policy believe that there exists a between and due to Passive Non discretionary Policymaking that is carried out in response to a not in response to an actual or potential in overall economic activity For example Rate of growth of money People in favor of Passive Policy believe that discretionary policies involve and policy makers are ie they make or are swayed by Also they believe that there is trade off between unemployment and inflation Review In the long run inflation and unemployment are The inflation rate is determined by the and the unemployment rate is determined by the which depends on amount of and unemployment However in the short run there is normally a Due to Uactual when Y Yn U UN uc 0 when Y YN U UN uc 0 SRPC Short Run Phillips Curve Shows the Short run Tradeoff between unemployment and inflation 1958 A V Phillips showed that nominal wage growth was correlated with unemployment Assume we are currently at Z where P 100 this year and GDP Scenario 1 low growth AD only increases to AD1 reflecting for example slow money growth then outcome A will occur next year In outcome A P 103 next year so the inflation rate from this year to next equals Output Y1 is relatively low so unemployment is relatively high at Scenario 2 high growth Instead if aggregate demand increases to AD2 reflecting for example rapid money growth then outcome B will occur next year In outcome B P 105 next year so the inflation rate from this year to next equals Output Y2 is higher so unemployment is Shifts in AD cause a the SRPC Does this mean that Policy makers can pick and choose Suppose the Fed wanted to decrease unemployment from 6 1963 where inflation was to 4 Fed could undertake an monetary policy Bonds MS r C and I AD unemployment and inflation IN 1968 unemployment was while inflation was However LRPC would shift if anything changes such as This would cause the LRAS to shift An unexpected change in inflation caused by an unexpected change in or causes RGP to from YN due to In the Short run Fed can cause Unemployment rate to fall below by making inflation In the long run Expectations to reality wages and u to UN Fed tries to lower U from 6 to 4 Short run Fed MS r AD price Y U economy is at Long run Expectations wages Costs to firms SRAS shifts SRPC shifts U Misery Index During the current crisis MI was about Negative Supply Shock an event that directly affects and thus Supply Problems with Stagflation Policy The second time there was stagflation the Fed took a



View Full Document

Access the best Study Guides, Lecture Notes and Practice Exams

Loading Unlocking...
Login

Join to view Chapter 13 phillips curve-2 and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view Chapter 13 phillips curve-2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?