ch 36 unemployment and inflation
TRANSCRIPT
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Chapter 36
Unemployment and Inflation
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Economic Cycle
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Saudi Inflation Rate
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A. W. Phillips(1914 - 1975)
Phillips Curve
Relationshipbetween
Inflation andUnemployment
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Phillips Curve
A curve that shows the short-run trade-off
between unemployment and inflation
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George Akerlof(1940 - )
Nobel Prize 2001
"Probably the single most important
macroeconomic relationship is
the Phillips curve."
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InflationRate
Unemployment Rate
Phillips Curve
19611963
1962
1964
1965
19661967
1968
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InflationRate
Unemployment Rate4% 7%
6%
2%
Phillips Curve
TradeoffHigh Inflation and Low UnemploymentLow Inflation and High Unemployment
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Milton Friedman(1912 - 2006)
Is there a long term
relationshipbetween
Inflation andUnemployment?
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InflationRate
Unemployment Rate
19611963
1962
1964
1965
19661967
1968
1969 19701971
1972
1973
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InflationRate
Unemployment Rate
1968
1969 19701971
1972
1973
No Relationship
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Milton Friedman(1912 - 2006)
No Long RunStructural
Relationshipbetween
Inflation andUnemployment
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Short-Run
Long-Run
Inflation can reduce unemployment
Inflation and unemployment are unrelated
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InflationRate
Unemployment Rate
Phillips -Friedman Curves
Short-Run
Long-Run
No relationshipbecause LRAS is vertical
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PriceLevel
Quantity of Output
P1
AD- AS Model
Aggregate Demand
Short RunAggregateSupply
Y1 Y2
P2
Long RunAggregateSupply
P3
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Natural Rate Hypothesis
The claim that unemployment returns to its normal, or natural rate regardless of the rate of
inflation
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Disinflationreduction in the rate of inflation - slows down
Deflationreduction in the price level
go in reverse
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Saudi Inflation Rate
Deflation
Disinflation
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1. What is the Phillips Curve?
2. What is the Friedman Curve?
3. Can inflation be good?
4. What is worse, inflation or deflation?
5. What is disinflation?