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6 HW
The Phillips Curve
Due: GOLD – Wednesday 2/28, BLUE – Thursday 3/1
Directions: Read the following introduction and then click on the video link for the Phillip’s Curve. Work
through this document while watching the video.
Introduction
The Short and Long Run Phillips Curves are a “partner graph” to AD/SRAS/LRAS, meaning that we can
draw a Phillips Curve using only information shown in an AD/SRAS/LRAS graph and, in fact, the Phillips
Curve is a mirror image of AD/SRAS/LRAS graph. More specifically, the Short-Run Phillips Curve is a
mirror image of the Short-Run Aggregate Supply Curve and the Long-Run Phillips Curve is a mirror image
of the Long-Run Aggregate Supply Curve.
Part A – Shifts of Aggregate Demand cause movement along the SRPC. An increase in Aggregate
Demand will cause the point on the SRPC to move up and left, indicating an increase in the inflation rate and
a decrease in the unemployment rate. A decrease in Aggregate Demand will cause the point on the SRPC to
move down and right, indicating an increase in the unemployment rate and a decrease in the inflation rate.
Inflation?
Output?
Unemployment?
3.6 HW
5. Draw an AD/SRAS/LRAS graph at 7. Draw a Short-Run Phillips Curve marking
equilibrium at full employment level current full employment equilibrium point
of output. “A” and labeling it with u1 and π1.
Inflation?
Output?
Unemployment?
Part B – Shifts of Short-Run Aggregate Supply cause mirror image shifts of the SRPC. Negative AS
shocks, which shift the SRAS leftward, will shift the short-run Phillips curve to the right, resulting in both
higher rates of inflation and higher rates of unemployment. An increase in inflationary expectations will
also shift the SRPC curve to the right. Positive AS shocks, which shift the SRAS rightward, will shift the short-
run Phillips curve to the left, resulting in both lower rates of inflation and lower rates of unemployment. A
decrease in inflationary expectations will do the same thing.
Inflation?
Output?
Unemployment?
Part C - Practice
3.6 HW
Inflation?
Output?
Unemployment?
Inflation?
Output?
Unemployment?
7. Show the long run corrections on the 8. Show the long run corrections on the
AD/SRAS/LRAS graph. Phillips Curve.
Inflation?
Output?
Unemployment?
For each of the following, note whether it will cause an increase or decrease in unemployment.
1.
LRPC Shifter Impact on Unemployment
Changes in government policies
b. temp agencies