Short run Philips curve

• What does the Phillips curve show that we already know?

  Inflation, demand pull, cost push, long-term equilibrium
• According to the text, what is the likelihood of encountering a very specific question on the Phillips curve in an exam?

  It is unlikely
• In what scenario is the Phillips curve most useful according to the text?

  Showing conflict between inflation and unemployment
• What does the text suggest about the Phillips curve's ability to reveal entirely new economic concepts?

  It doesn't really tell us anything new
• Where did Phillips make his name?

  London School of Economics
• Who was Phillips?

  A New Zealand Economist
• When did Phillips develop his theory?

  Late 1950s early 1960s
• What relationship did Phillips map?

  Wages and unemployment
• What type of analysis did Phillips use?

  Simple correlation analysis
• What kind of curve did Phillips find between wage growth and unemployment?

  A downward sloping curve
• According to Phillips, what happens to wages when unemployment is very low?

  Wages were rising very quickly
• Why do wages rise quickly when unemployment is low, according to Phillips?

  Workers have more bargaining power
• According to Phillips, what happens to wage growth during times of high unemployment?

  Wage growth would be falling
• Why might wage growth become negative during high unemployment, according to Phillips?

  Workers took pay cuts
• In the 1960s, why was it considered reasonable to change wage growth to inflation rate on the y-axis?

  Firms were very labor intensive
• What is a side effect of increased growth and reduced unemployment when the economy is close to full employment?

  Higher inflation
• According to the Phillips curve, what does low unemployment require a sacrifice of?

  Inflation objective
• What does the short-run Phillips curve (SRPC) suggest about achieving both low unemployment and low inflation simultaneously?

  You can't have both at the same time
• What must politicians sacrifice to achieve low and stable inflation rates, according to the SRPC?

  Unemployment Target
• From what does a lot of the Phillips curve Theory stem?

  Classical economics
• What does the natural rate of unemployment represent?

  Labor market is an equilibrium
• What types of unemployment exist at the natural rate of unemployment?

  Structural, seasonal, frictional
• On the Phillips curve, what happens when aggregate demand shifts to the right?

  Move up the Phillips curve
• According to the Phillips curve, what happens when we increase growth and reduce unemployment?

  Suffer from higher inflation
• In the classical model, what happens to output and inflation when aggregate demand shifts to the left?

  Output falls, inflation falls
• On the Phillips curve, what does a movement down the curve represent?

  Higher unemployment, lower inflation
• What happens on the short run Phillips curve when aggregate demand shifts?

  You move along it
• What type of inflation can the short run Phillips curve represent?

  Demand pull inflation
• What did monetarists and classical economists like Milton Friedman believe about the basic Phillips curve model?

  It was not good enough
• What economic condition could not be shown on the basic Phillips curve?

  Stagflation
• According to the monetarists, what happens to the Phillips curve when there is a negative supply side shock?

  The Philips curve will shift
• In what direction does the Phillips curve shift relative to the SRAS curve after a negative supply-side shock, according to monetarists?

  The opposite way
• What does point B represent after a negative supply side shock and a shift in the Phillips curve?

  Stagflation
• What can be shown by shifting the short-run Phillips curve left or right?

  Cost push inflation
• What are the three ways the Philips curve can be used?

  Demand pull, cost push, conflict
• According to the text, what fundamental disagreement did monetarists still have with the adapted Phillips curve model?

  It doesn't show long-term equilibrium
• In the long term, what does the classical model demonstrate that the short-run Phillips curve does not?

  The economy can move back
• What is the subject of the video that will follow?

  The long run Philips curve
• What is the definition of stagflation?

  Periods of higher inflation and higher levels of unemployment.