Phillips Curve Application Two


The Phillips Curve predicts a negative relationship between output fluctuations and the change in inflation.
See page 224+  Phillips curve.


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

 



The Phillips curve predicts a positive relation between short-run output deviations and changes in inflation.

With short-run output above potential (in the “booming economy section of the figure above), inflation is expected to increase.


With short-run output below potential (in the ‘slumping economy’ section above), inflation is expected to decrease.

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