Phillips Curve Application One


If output is above potential, then inflation will fall over time.
See page 224+  Phillips curve.


The basic Phillips curve (from Jones Macro Econ textbook – note that most other textbook display the Phillips curve differently).
 



We can see that our True/False statement is contradicted by the intuition of the Phillips curve. With Short-run Output above zero (that is, realized short-run output above the potential) inflation would be expected to be increase – not fall. 



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