April 19, 2017

Short-Run Phillips Curve & Stagflation

• If inflation persists, and the expected rate of inflation rises, then the entire SRPC moves upwards

Stagflation

• Simultaneous rise in inflation and unemployment

Supply Shocks (Adverse Supply Shocks): 

• Rapid and significant increase in resource cost, which causes the SRAS to shift
• Depreciation of a Dollar
• Oil Embargo
• Rapid increase in price of gas

• If inflation expectations drop due to new technology, then SRPC will move downward

LRPC

• Natural Rate of Unemployment= Frictional, Seasonal, and Structural Unemployment

Missing Index

• A combination of inflation and unemployment in any given year. 
• Single digit misery is good