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Boundless Lecture Slides

Explore the relationship between inflation and unemployment with Boundless. Learn about the Phillips Curve, long-run and short-run effects, and the impact of expectations on inflation. Customize your lectures with free editable slides.

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Boundless Lecture Slides

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  1. Boundless Lecture Slides Available on the Boundless Teaching Platform Free to share, print, make copies and changes. Get yours at www.boundless.com

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  4. The Relationship Between Inflation and Unemployment Inflation and Unemployment ] Inflation and Unemployment Free to share, print, make copies and changes. Get yours at www.boundless.com

  5. Inflation and Unemployment > The Relationship Between Inflation and Unemploy... The Relationship Between Inflation and Unemployment • The Phillips Curve • The Relationship Between the Phillips Curve and AD-AD • The Long-Run Phillips Curve • The Short-Run Phillips Curve • Relationship Between Expectations and Inflation • Shifting the Phillips Curve with a Supply Shock • Disinflation Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/economics/textbooks/boundless-economics-textbook/inflation-and-unemployment-23/the-relationship-between-inflation-and-unemployment-105/

  6. Appendix Free to share, print, make copies and changes. Get yours at www.boundless.com

  7. Inflation and Unemployment Key terms • adaptive expectations theoryA hypothesized process by which people form their expectations about what will happen in the future based on what has happened in the past. • aggregate demandThe the total demand for final goods and services in the economy at a given time and price level. • deflationA decrease in the general price level, that is, in the nominal cost of goods and services. • disinflationA decrease in the inflation rate. • inflationAn increase in the general level of prices or in the cost of living. • Natural Rate of UnemploymentThe hypothetical unemployment rate consistent with aggregate production being at the long-run level. • non-accelerating inflation rate of unemployment(NAIRU); theory that describes how the short-run Phillips curve shifts in the long run as expectations change. • Phillips curveA graph that shows the inverse relationship between the rate of unemployment and the rate of inflation in an economy. • Phillips curveA graph that shows the inverse relationship between the rate of unemployment and the rate of inflation in an economy. • Phillips curveA graph that shows the inverse relationship between the rate of unemployment and the rate of inflation in an economy. • rational expectations theoryA hypothesized process by which people form their expectations about what will happen in the future based on all relevant information. • stagflationInflation accompanied by stagnant growth, unemployment, or recession. Free to share, print, make copies and changes. Get yours at www.boundless.com

  8. Inflation and Unemployment • stagflationInflation accompanied by stagnant growth, unemployment, or recession. • supply shockAn event that suddenly changes the price of a commodity or service. It may be caused by a sudden increase or decrease in the supply of a particular good. Free to share, print, make copies and changes. Get yours at www.boundless.com

  9. Inflation and Unemployment US Phillips Curve (2000 - 2013) The data points in this graph span every month from January 2000 until April 2013. They do not form the classic L-shape the short-run Phillips curve would predict. Although it was shown to be stable from the 1860's until the 1960's, the Phillips curve relationship became unstable - and unusable for policy-making - in the 1970's. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."U.S.Phillips Curve 2000 to 2013."CC BY-SAhttp://en.wikipedia.org/wiki/File:U.S._Phillips_Curve_2000_to_2013.pngView on Boundless.com

  10. Inflation and Unemployment Theoretical Phillips Curve The Phillips curve shows the inverse trade-off between inflation and unemployment. As one increases, the other must decrease. In this image, an economy can either experience 3% unemployment at the cost of 6% of inflation, or increase unemployment to 5% to bring down the inflation levels to 2%. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikispaces.CC BY-SAhttps://ib-econ.wikispaces.com/Q18-Macro+(Is+there+a+long-term+trade-off+between+inflation+and+unemployment?)View on Boundless.com

  11. Inflation and Unemployment Aggregate Supply Shock In this example of a negative supply shock, aggregate supply decreases and shifts to the left. The resulting decrease in output and increase in inflation can cause the situation known as stagflation. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."Economics supply shock."GNU FDLhttp://en.wikipedia.org/wiki/File:Economics_supply_shock.pngView on Boundless.com

  12. Inflation and Unemployment Disinflation Disinflation can be illustrated as movements along the short-run and long-run Phillips curves. Free to share, print, make copies and changes. Get yours at www.boundless.com https://lh5.googleusercontent.com/-Bc5Yt-QMGXA/Uo3sjZ7SgxI/AAAAAAAAAXQ/1MksRdza_rA/s512/Phillipscurve_disinflation2.png.CC BY-SAhttps://lh5.googleusercontent.com/-Bc5Yt-QMGXA/Uo3sjZ7SgxI/AAAAAAAAAXQ/1MksRdza_rA/s512/Phillipscurve_disinflation2.pngView on Boundless.com

  13. Inflation and Unemployment Phillips Curve and Aggregate Demand As aggregate demand increases from AD1 to AD4, the price level and real GDP increases. This translates to corresponding movements along the Phillips curve as inflation increases and unemployment decreases. Free to share, print, make copies and changes. Get yours at www.boundless.com Boundless Learning."Boundless."CC BY-SAhttp://www.boundless.comView on Boundless.com

  14. Inflation and Unemployment NAIRU and Phillips Curve Although the economy starts with an initially low level of inflation at point A, attempts to decrease the unemployment rate are futile and only increase inflation to point C. The unemployment rate cannot fall below the natural rate of unemployment, or NAIRU, without increasing inflation in the long run. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."NAIRU-SR-and-LR."GNU FDLhttp://en.wikipedia.org/wiki/File:NAIRU-SR-and-LR.svgView on Boundless.com

  15. Inflation and Unemployment Expectations and the Phillips Curve According to adaptive expectations theory, policies designed to lower unemployment will move the economy from point A through point B, a transition period when unemployment is temporarily lowered at the cost of higher inflation. However, eventually, the economy will move back to the natural rate of unemployment at point C, which produces a net effect of only increasing the inflation rate.According to rational expectations theory, policies designed to lower unemployment will move the economy directly from point A to point C. The transition at point B does not exist as workers are able to anticipate increased inflation and adjust their wage demands accordingly. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikispaces.CC BY-SAhttps://ib-econ.wikispaces.com/Q18-Macro+(Is+there+a+long-term+trade-off+between+inflation+and+unemployment?)View on Boundless.com

  16. Inflation and Unemployment Short-Run Phillips Curve The short-run Phillips curve shows that in the short-term there is a tradeoff between inflation and unemployment. Contrast it with the long-run Phillips curve (in red), which shows that over the long term, unemployment rate stays more or less steady regardless of inflation rate. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia."PhilCurve.png."CC BY-SA 3.0https://commons.wikimedia.org/wiki/File:PhilCurve.pngView on Boundless.com

  17. Inflation and Unemployment Short-Run Phillips Curve The short-run Phillips curve shows the trade-off between inflation and unemployment. Free to share, print, make copies and changes. Get yours at www.boundless.com Google.CC BY-SAhttps://picasaweb.google.com/111466934570626023605/20131118%235948595522890616994View on Boundless.com

  18. Inflation and Unemployment Attribution • Wiktionary."stagflation."CC BY-SA 3.0http://en.wiktionary.org/wiki/stagflation • Boundless Learning."Boundless."CC BY-SA 3.0http://www.boundless.com//economics/definition/phillips-curve • Wikispaces.CC BY-SAhttps://ib-econ.wikispaces.com/Q18-Macro+(Is+there+a+long-term+trade-off+between+inflation+and+unemployment?) • Wikispaces."sjhsrc - Phillips Curve."CC BY-SAhttps://sjhsrc.wikispaces.com/Phillips+Curve • Wikipedia."Phillips curve."CC BY-SA 3.0http://en.wikipedia.org/wiki/Phillips_curve • Wikipedia."aggregate demand."CC BY-SA 3.0http://en.wikipedia.org/wiki/aggregate%20demand • Boundless Learning."Boundless."CC BY-SA 3.0http://www.boundless.com//economics/definition/phillips-curve • Wikispaces.CC BY-SAhttps://ib-econ.wikispaces.com/Q18-Macro+(Is+there+a+long-term+trade-off+between+inflation+and+unemployment?) • Wikipedia."Phillips curve."CC BY-SA 3.0http://en.wikipedia.org/wiki/Phillips_curve • Boundless Learning."Boundless."CC BY-SA 3.0http://www.boundless.com//economics/definition/non-accelerating-inflation-rate-of-unemployment • Wikipedia."Natural Rate of Unemployment."CC BY-SA 3.0http://en.wikipedia.org/wiki/Natural%20Rate%20of%20Unemployment • Wikipedia."Natural rate of unemployment."CC BY-SA 3.0http://en.wikipedia.org/wiki/Natural_rate_of_unemployment • Wikipedia."Natural rate of unemployment."CC BY-SA 3.0http://en.wikipedia.org/wiki/Natural_rate_of_unemployment • Wikipedia."Phillips curve."CC BY-SA 3.0http://en.wikipedia.org/wiki/Phillips_curve • Wikispaces."EconWikis-MBorg - Milton Friedman."CC BY-SAhttp://econwikis-mborg.wikispaces.com/Milton+Friedman • Boundless Learning."Boundless."CC BY-SA 3.0http://www.boundless.com//economics/definition/phillips-curve • Wikipedia."Phillips curve."CC BY-SA 3.0http://en.wikipedia.org/wiki/Phillips_curve Free to share, print, make copies and changes. Get yours at www.boundless.com

  19. Inflation and Unemployment • Wikispaces."AP-MacroEconomics - Unit V."CC BY-SAhttp://ap-macroeconomics.wikispaces.com/Unit+V • Wikispaces.CC BY-SAhttps://ib-econ.wikispaces.com/Q18-Macro+(Is+there+a+long-term+trade-off+between+inflation+and+unemployment?) • Boundless Learning."Boundless."CC BY-SA 3.0http://www.boundless.com//economics/definition/rational-expectations-theory • Wikipedia."adaptive expectations theory."CC BY-SA 3.0http://en.wikipedia.org/wiki/adaptive%20expectations%20theory • Wikipedia."Real versus nominal value (economics)."CC BY-SA 3.0http://en.wikipedia.org/wiki/Real_versus_nominal_value_(economics) • Wikipedia."Adaptive expectations."CC BY-SA 3.0http://en.wikipedia.org/wiki/Adaptive_expectations • Wikipedia."Rational expectations."CC BY-SA 3.0http://en.wikipedia.org/wiki/Rational_expectations • Wikipedia."Phillips curve."CC BY-SA 3.0http://en.wikipedia.org/wiki/Phillips_curve • Wikipedia."supply shock."CC BY-SA 3.0http://en.wikipedia.org/wiki/supply%20shock • Wiktionary."stagflation."CC BY-SA 3.0http://en.wiktionary.org/wiki/stagflation • Wikipedia."Stagflation."CC BY-SA 3.0http://en.wikipedia.org/wiki/Stagflation • Wikipedia."Supply shock."CC BY-SA 3.0http://en.wikipedia.org/wiki/Supply_shock • Wikispaces."sjhsrc - Phillips Curve."CC BY-SAhttps://sjhsrc.wikispaces.com/Phillips+Curve • Wikipedia."Phillips curve."CC BY-SA 3.0http://en.wikipedia.org/wiki/Phillips_curve%23Stagflation • Wiktionary."deflation."CC BY-SA 3.0http://en.wiktionary.org/wiki/deflation • Wiktionary."inflation."CC BY-SA 3.0http://en.wiktionary.org/wiki/inflation • Wiktionary."disinflation."CC BY-SA 3.0http://en.wiktionary.org/wiki/disinflation • Wikispaces."McHenry's AP Wiki - Long-Run AS."CC BY-SAhttp://mchenry.wikispaces.com/Long-Run+AS • Wikipedia."Disinflation."CC BY-SA 3.0http://en.wikipedia.org/wiki/Disinflation Free to share, print, make copies and changes. Get yours at www.boundless.com

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