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Inflation, Unemployment and Economic Growth
Quick questions on The Phillips curve and policy conflicts explained: H2 Economics
5short Q&A pairs drawn directly from our worked dot-point answer. For full context and worked exam questions, read the parent dot-point page.
What is the short-run Phillips curve?Show answer
The short-run Phillips curve (SRPC) shows an inverse relationship between unemployment and inflation: when unemployment is low, inflation tends to be high, and vice versa. The intuition links to AD-AS: boosting AD reduces unemployment (more output, more hiring) but, near capacity, raises inflation. So in the short run there appears to be a trade-off, which is the unemployment-inflation conflict among the macroeconomic aims.
What is the long-run Phillips curve?Show answer
In the long run, inflation expectations adjust fully to actual inflation. Any attempt to hold unemployment below the natural rate through demand stimulus only raises inflation: workers anticipate it, demand higher wages, and unemployment drifts back to the natural rate at a higher inflation rate. Repeating this just ratchets inflation up.
What is q1?Show answer
Describe the relationship shown by the short-run Phillips curve. [2 marks]
What is q2?Show answer
Explain why the long-run Phillips curve is vertical. [3 marks]
What is q3?Show answer
Explain how unemployment can be reduced in the long run. [2 marks]
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