IGNOU MEC 2 2014 2015 - What does the Phillips curve signify? How do you reconcile the differe

Question

What does the Phillips curve signify? How do you reconcile the difference in the shape of the

curve in the short run and the long run?

08 Feb 2018

Answer :

Word Count : 1426

The Phillips curve shows the relationship between unemployment and inflation in an economy. Since its ‘discovery’ by British economist AW Phillips, it has become an essential tool to analyse macro-economic policy.

The curve suggested that changes in the level of unemployment have a direct and predictable effect on the level of price inflation. The accepted explanation during the 1960’s was that a fiscal stimulus, and increase in AD, would trigger the following sequence of responses:

An increase in the demand for labour as government spending generates growth.
The pool of unemployed will fall.
Firms must compete for fewer workers by raising nominal wages.
Workers have greater bargaining power to seek out increases in nominal wages.
Wage costs will rise.
Faced with rising wage costs, firms pass on these cost increases in higher prices.
it appeared that the Phillips Curve trade off no longer existed - there no longer seemed a stable pattern. The stable relationship between unemployment and inflation appeared to have broken down. It was possible to have a number of inflation rates for any given unemployment rate.
American economists Friedman and Phelps offered one explanation - namely that there is not one Phillips curve, but a series of short run Phillips Curves and a long run Phillips Curve, which exists at the natural rate of unemployment (NRU). Indeed, in the long-run, there is no trade-off between unemployment and inflation.

Although there are disagreements between new-Classical economists andmonetarists, the general line of argument about the breakdown of the Phillips curve runs as follows.

Assume that the economy starts from an equilibrium position at point A, with inflation currently at zero, and unemployment at the natural rate of 10% (NRU = 10%). Secondly, given the public’s concern with unemployment, assume the government attempts to expand the economy quickly by way of a fiscal (or monetary) stimulus, so that AD increases and unemployment falls.

Initially, the economy moves to B, and there is a fall in

__________ _______ _____ __________ _______ _______ ___ ______ _______ _____.
_____ __________ _________ ________ ______.
_____ ____ ___ __________ _____ ____ _____ _______.
________ __________ ____ ___ _________ ________ __________ _______ _____.
_______ ______ _________ _____ _____ _________ ______ ____ _____.
_________ _______ ______ _____ ________ _________ ____ ____ _______ __________ _____.
________ ____ _____ ______ ______ ___ ___ __________ ________.
_________ _______ __________ ____ ______ ____ ____ ___ __________.
______ ____ _______ _______ _________ ___ ________ _______ _________ ___ _____ _____.
________ _________ __________ _____ ______ ___ __________.
____ ______ ________ ______ ___ ______ __________ ________ _____.
_________ ________ _____ _________ _______ _______ __________.
__________ ___ ______ ____ _______ ________ ___ ______ __________ _____.
_______ ______ ___ ____ __________ _____ _____ ______ ________ _________.
________ __________ _______ ___ _______ ________ ____ _____ _________ _____.
___ ____ ______ _________ ___ _____.
________ ___ ______ _______ _________ _________ ______ _________ ___ ___.
_____ ____ __________ ______ _______ ____ _________ ____ _________ _____ ________ __________.
___ ____ ___ ________ _______ ______.
______ _________ ______ ____ ___ ___ _________ _______.
____ __________ _________ _______ ______ ____ _____.
_____ ______ ___ ____ ___ _______ _________ ______ _____.
_______ ____ _________ ___ ________ ______ ________ __________ ______.
______ ___ _____ ________ _______ _________ ____ ______ ___ ______ ___.
______ _________ ______ ____ ________ ______ __________.
___ ___ __________ ________ _________.
_________ ______ ________ __________ ____ _____.
________ _________ _____ _______ _______ ________ _____ ___.
_______ ____ ____ _______ ________ ____ _____ ___ ____ _____ __________.
__________ _____ __________ _______ _________ ______.
____ _____ ___ ____ ___.
________ _____ _______ _______ _______ ___ _________.
______ _________ ______ _________ ______ ___ ______ ____ ____ __________ _________ _______.
_____ ________ ______ ______ ________.
___ _________ ____ _______ _______ _______ ______ ________ __________.
____ __________ ____ __________ ________ _____ __________ _________ _________ ______ ______ ______.
_____ _________ ______ _______ __________ ____ _______.
____ ________ _____ _________ ___ ________ ______ ____ ___ ___.
_________ ____ ___ ______ _______ _____ ___ ______ ___ ____.
__________ ________ __________ _____ ______ _____ ___.
____ __________ ______ ______ ___ ___ ______ _______.
____ __________ _____ _______ _________ ________ ______.
____ ________ _______ _________ __________ _________ ___ _____ ___ ______.
___ _____ __________ _______ ______ _________ _____ ________ ______.
_______ ________ ______ ____ ________ _______ ___ __________ _________ ________ _________.
____ _____ ___ _________ ____ ________.
_____ ____ ________ ________ _______ _________ _____ ________ ______ ___ __________.
____ _________ ____ ___ _________.
________ _________ _______ _________ _______ _________ _________ ___ _________ _________ ___.
_________ ______ ____ ___ ________ _______ __________.
____ _______ ______ ________ ____ _____ ____ ________.
___ __________ ________ _________ _______ _________ ______.
________ ____ ______ ___ ___ ___ ______ _______.
__________ _______ ____ ______ ___ __________ _______ ___.
____ ______ _________ ____ ______ ______ _________ _________ ______ _________ _________ _____.
________ __________ ______ _______ _________ _____ ________.
______ ___ _________ ____ ____ _________.
______ ____ _________ _____ ______ _________ ____ ________.
______ ______ ________ _______ _________ ____ ______ ________ ___ _____.
_______ ____ ______ ___ ____ __________ _______ _______.
____ ______ _______ _____ _________ _________ __________ ______ ________ __________.
___ ___ __________ _________ __________ ___.
_________ _________ ____ ___ ___ _________ ________ _________.
_________ _____ ________ ________ _________ ______ __________ _______ __________ __________ __________.
___ _______ ___ _________ ___ _________ ________ __________.
____ __________ __________ _____ _____.
__________ ____ __________ ______ __________.
________ ________ ___ ________ ___.
_____ ______ _____ __________ ________ _____ _________.
____ ___ __________ _______ __________ ____ _________ _______.
_____ ________ ____ _______ ___ ___ _______ ____ __________ ______.
_____ ___ _____ _____ _____ _______ ____.
__________ _______ ____ ________ _________ ___ ___ _______ __________ _____.
________ _________ ______ _________ _____ _________ ____ _________ __________.
___ ____ _______ ________ _____ __________ _____ ______.
________ _______ ____ __________ _______ ______ ___ ____ ___ __________ ____ ___.
_______ _______ _____ _____ _____ _____ ___ _________ ____ ___ ____.
_____ ___ _________ ______ _____.
__________ ______ _____ ________ _________ _______ _______ ______.
__________ __________ ______ __________ ________ ___ _____ _________ ______.
_________ _________ ____ _____ ________ ______ __________ ______ ____.
________ ___ _____ ____ _______ _____ ___ ___ ___ __________ __________ ______.
___ _______ ____ _________ __________ __________ __________ ____ ____ __________.
_________ ____ _________ _______ _______ ______ _______ _______ ___ ____ ______ _____.
___ _____ ____ ______ _________ ________ _________ ___ __________ _________.
___ ____ __________ ___ _________ __________ __________.
_____ ____ ________ ________ _________ __________ ____ __________ _______.
_____ ____ ___ ____ _____ ____ __________ _________.
____ ____ _______ __________ ________ _______ ________ __________.
__________ _______ ______ ____ _____ ________ _____ ______ ____ ________ _____.
________ _____ _______ _________ ___ ____ ___ ___ ___ __________ ___.
_________ ______ __________ ________ ____ __________ ________.
_____ ________ ______ _____ _______ _______.
_________ __________ ___ ______ ________ __________ __________.
_______ _____ ______ _______ _____ __________ ________ _______ _____.
____ ________ ______ _____ __________ _____.
__________ ___ _____ ________ ____ _____ ____ _________.
_____ _____ _______ ____ __________ ____ _______.
_________ __________ _______ _________ _________ _____ ________.
_________ __________ ______ ______ ________ ________ _______ _______ _______ _________ ________ __________.
___ _____ _____ ___ ___ _________ __________ ______ ________ __________.
______ __________ _________ ______ ____ ___ ___ _____ ___ _______ _________ ____.
__________ _________ ____ ____ ________ _____ ________ _________ ______ ____ _____ __________.
_____ _____ ____ _____ _______ ______.
________ ______ ________ ______ ______ ________.
_____ _____ __________ _________ ____ __________ _________.
______ _________ ______ ___ ________ ______.
_____ _____ ______ ____ ____ ______ _____ ________ ___ __________ ______.
__________ _____ ____ _______ _________ _______ ________ _________.
________ _________ ___ _______ ____ ___ __________ _______ __________ _________ _____ ______.
_______ _________ ______ ___ _______ __________ _________ ____ ___.
___ _________ __________ ___ ________ ________ _____ _____ _______ _____ ______.
__________ ________ ___ _________ _____ ____.
______ _________ _________ _________ _______ _________ __________ ___ ______.

IGNOU ACADEMY

Your IGNOU journey, made easier.

Solved Assignments
Study Notes
Guess Papers
Question Papers

Call Us WhatsApp

STUDY • PREPARE • SUCCEED

Skip in 10

IGNOU Solved Assignments Assignments Ignou Projects Project Previous Year Solved Exam Papers Notes Notes Sample Question Papers Sample Question Papers