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The Phillips curve
Theoru of expectations.
Short-run and long-run aggregate supply
- Short-run: An increase in AD in the up-sloping portion of AS curve can be expected to increase both the price level and real output.
- BUT
- To analyze longer time period we need to extend the analysis of AS to account for changes in nominal wages which are in response to change
Short-run and long-run: definitions.
· The short run is the period in which nominal wages (and other input prices) remain fixed as the price level changes.
· Reasons:
- Workers may not immediately be aware of the extent to which inflation has changed their real wages. They may not adjust their SL and wage demands;
- Many employees are hired under fixed-wage contracts.
- The long run - a period in which nominal wages are fully responsive to changes in the price level.
- Workers gain full information about price-level changes and determine how these changes have affected their real
Short-run aggregate supply
This curve
- An i
Long-run aggregate supply
nominal wages in the long run are fully responsive to changes in the price level.
- A price-level rise increases nominal wages and thus shifts the short-run AS curve leftward.
- A decrease in the price-level reduces nominal wages and thus shifts the short-run AS curve rightward.
- After such adjustments, the economy reaches equilibrium at points b and c.
- Thus, the long-run AS curve is vertical.
The phillips curve
- Shows a stable relationship between the rate of inflation and the unemployment rate.
The phillips curve: criticism
- This curve is available for short-run period.
- In the long -run the economy automatically gravitates to its natural rate of unemplo
The theories of expectation (natural-rate theory)
- The adaptive expectations(ожиданий) theory
- The rational expectations theory
The adaptive expectations theory
- Assumes people form their expectations of future inflation on the basis of previous and present rates of inflation. When people do, the U rate return to the natural rate.
- The long-run Phillips Curve is therefoe vertical,
The rational expectations theory
- Assumes that increases in nominal wages lag behind increases in the price level because the increases in the price level are not anticipated.
- Workers will anticipate the inflationary effects of monetary and fiscal policy and will build these expectations into their wage demands.
- As a result, not even a short-run Phillips curve will exist.
- The economy will simply move along its vertical long-run Phillips Curve when government undertakes expansionary policies.
Дата публикования: 2015-01-26; Прочитано: 284 | Нарушение авторского права страницы | Мы поможем в написании вашей работы!