Any Economists willing to explain the Phillips curve??? Please! :-) - Tilted Forum Project Discussion Community

ARRH · 10-27-2003, 01:30 AM

Hi,

Are there any economists in here that are able and willing to give a go and explain briefly how the whole Phillips curve works? I kinda get it, but my notes on this tiny part of my Macro Economics course are just not enough, and I can't get the textbook either! :-(

I know it's a lot to ask, but I'd be very gratefull!

Sander

onetime2 · 10-27-2003, 05:07 AM

The Phillips curve captures the inverse relationship between inflation and unemployment (inflation on the y-axis and unemployment on the x-axis). Whenever unemployment is low, inflation is high. When unemployment is high, inflation is low.

Unemployment is considered low or high relative to the so-called natural rate of unemployment (there are differing opinions on what this rate is. Traditionally, the natural rate is thought to be around the 5% mark). Inflation is considered low or high relative to the expected rate of inflation.

When the phillips curve is steep, small movements in unemployment will have a large impact on inflation.

A shallow phillips curve means that even large changes in unemployment will have only a small effect on inflation.

Hope this helps.

--Paul

ARRH · 10-27-2003, 04:03 PM

Thanks for your reply. But that's not really what I needed though. I had to know how the govt lowers inflation through tightening monetary policy, which lowers inflation slightly, but massively increases unemployment. And then the slow recovery through workers having to accept lower wages, ending up back on the long-run Phillips curve, and creating a new short-run Phillips curve.
Anyways, I think I understood it enough. Just had my exam this morning, and I think it went ok. There was only a small Phillips Curve question, and it seemed to go ok.

onetime2 · 10-27-2003, 05:12 PM

Quote:

Originally posted by ARRH
I had to know how the govt lowers inflation through tightening monetary policy, which lowers inflation slightly, but massively increases unemployment. And then the slow recovery through workers having to accept lower wages, ending up back on the long-run Phillips curve, and creating a new short-run Phillips curve.

Glad it went okay. I didn't want to get too detailed in the response as from your post I assumed you were just looking for a general understanding of it and not the implications of policy with regard to it and shifts from long-run to short run and vice versa.

10-27-2003, 01:30 AM	#1 (permalink)
ARRH Insane	Any Economists willing to explain the Phillips curve??? Please! :-) Hi, Are there any economists in here that are able and willing to give a go and explain briefly how the whole Phillips curve works? I kinda get it, but my notes on this tiny part of my Macro Economics course are just not enough, and I can't get the textbook either! :-( I know it's a lot to ask, but I'd be very gratefull! Sander

10-27-2003, 05:07 AM	#2 (permalink)
onetime2 Junkie Location: NJ	The Phillips curve captures the inverse relationship between inflation and unemployment (inflation on the y-axis and unemployment on the x-axis). Whenever unemployment is low, inflation is high. When unemployment is high, inflation is low. Unemployment is considered low or high relative to the so-called natural rate of unemployment (there are differing opinions on what this rate is. Traditionally, the natural rate is thought to be around the 5% mark). Inflation is considered low or high relative to the expected rate of inflation. When the phillips curve is steep, small movements in unemployment will have a large impact on inflation. A shallow phillips curve means that even large changes in unemployment will have only a small effect on inflation. Hope this helps. --Paul __________________ Strive to be more curious than ignorant. Last edited by onetime2; 10-27-2003 at 05:10 AM..

10-27-2003, 04:03 PM	#3 (permalink)
ARRH Insane	Thanks for your reply. But that's not really what I needed though. I had to know how the govt lowers inflation through tightening monetary policy, which lowers inflation slightly, but massively increases unemployment. And then the slow recovery through workers having to accept lower wages, ending up back on the long-run Phillips curve, and creating a new short-run Phillips curve. Anyways, I think I understood it enough. Just had my exam this morning, and I think it went ok. There was only a small Phillips Curve question, and it seemed to go ok.