Shows that in the long term, output will always return to the Full Employment level
You need to watch the previous video on the short run Phillips curve to understand the long run Phillips curve
Deriving the long run Phillips curve from the classical model
1. Increase in AD
2. Increase in output from YF to Y2
3. Increase in demand for inflation
4. Increase in inflation and reduction in unemployment
5. Workers change wage expectations and demand higher wages
6. Increase in cost-push inflation
7. Shift of SRAS to the left
8. Shift of short-run Phillips curve to the right
9. Long run Phillips curve formed by connecting points
Long run Phillips curve
Tells us that output will always return to the Natural rate of unemployment, where all factors of production are being used to the maximum amount but at sustainable levels
Non-accelerating inflation rate of unemployment (NAIRU)
The unemployment rate at which the inflation rate can be stable and non-accelerating
Increasing aggregate demand
Not a way to increase growth in the long term
Supply-side policies
The only way to reduce the natural rate of unemployment and achieve sustainable growth in the long term
The long run Phillips curve complements classical ideas and classical models
